Question

All other things equal (YTM = 10%), which of the following has the longest duration? A....

All other things equal (YTM = 10%), which of the following has the longest duration? A. a 30-year bond with a 10% coupon B. a 20-year bond with a 9% coupon C. a 20-year bond with a 7% coupon D. a 30-year zero-coupon bond

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

All other things equal (YTM = 10%), which of the following has the longest duration?

A. a 30-year bond with a 10% coupon

B. a 20-year bond with a 9% coupon

C. a 20-year bond with a 7% coupon

D. a 30-year zero-coupon bond

The correct answer is option D. a 30-year zero-coupon bond has the longest duration.

  • Lower the coupon, longer is the duration, and vice versa.
  • Longer the maturity, longer is the duration, and vice versa.

Options A, B, and C are incorrect because their coupon is higher than that of a zero-coupon bond and the maturity is lower or equal to 30 years

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
8. All other things being equal, which one of the following bonds has the greatest price...
8. All other things being equal, which one of the following bonds has the greatest price volatility? a. 10-year, 12% coupon b. 10-year, 10% coupon c. 5-year, 10% coupon d. There is not enough information. a b c d
A coupon bond has 10-years to maturity and a YTM of 8%. If the YTM instantaneously...
A coupon bond has 10-years to maturity and a YTM of 8%. If the YTM instantaneously increases to 9%, what happens to the bond’s price and duration? The price decreases and the duration increases. The price increases and the duration decreases. The price decreases and the duration decreases. The price decreases and the duration stays the same 3- Which of the following would not be expected to cause yield spreads to widen? The firm is involved in an accounting scandal....
Which of the following is true if, all other things being equal, if the USD rallies...
Which of the following is true if, all other things being equal, if the USD rallies 1% versus the GBP (British pound)? Check all that apply. (There are 2 correct answers) a) The value of BP ADRs will decrease all other things being equal. The value of BP ADRs will decrease all other things being equal. b) US companies that earn a large percentage of their profits in the UK will exceed EPS expectations all other things being equal. c)...
Macaulay duration is longest for __________. A. high-coupon 30-year bonds B. low-coupon 30-year bonds D. none...
Macaulay duration is longest for __________. A. high-coupon 30-year bonds B. low-coupon 30-year bonds D. none of the above C. zero-coupon 30-year bonds
Which of the following Theorems is NOT one of Malkiel's Theorems regarding the relationship between YTM...
Which of the following Theorems is NOT one of Malkiel's Theorems regarding the relationship between YTM and bond prices? a. The yield curve is generally upward sloping. b. Longer-term bonds are more volatile than shorter-term bonds. c. Lower coupon bonds are more volatile than higher coupon bonds. d. Bond prices move inversely to bond yields. Eric purchased a 12-year, 7% coupon bond that is callable in three years. Which type of duration is the best for Eric to use to...
1. Assuming all else is constant, which of the following statements is CORRECT? a. Other things...
1. Assuming all else is constant, which of the following statements is CORRECT? a. Other things held constant, a 20-year zero coupon bond has more reinvestment risk than a 20-year coupon bond. b. Other things held constant, price sensitivity as measured by the percentage change in price due to a given change in the required rate of return decreases as a bond's maturity increases. c. Other things held constant, for any given maturity, a 1.0 percentage point decrease in the...
A pension fund has an average duration of its liabilities equal to 10 years. The fund...
A pension fund has an average duration of its liabilities equal to 10 years. The fund is looking at 4-year maturity zero-coupon bonds and 18-year maturity zero-coupon bonds to immunize its interest rate risk. How much of its portfolio should it allocate to the 4-year zero-coupon bonds and 18-year maturity zero-coupon bonds to immunize if there are no other assets funding the plan? A. 46%, 54% B. 58%, 42% C. 57%, 43% D. 52%, 48%
Which of the following statements is true for zero coupon bonds (other things being equal)? Select...
Which of the following statements is true for zero coupon bonds (other things being equal)? Select one: a. Their price increases as market interest rates rise. b. Their price falls as they approach their maturity date. c. They always trade at a discount. d. Their price remains constant throughout their life.
1.         Suppose you buy a 2 year 5% bond that has a yield to maturity (YTM)...
1.         Suppose you buy a 2 year 5% bond that has a yield to maturity (YTM) of 6%. What is the price of the bond? 2.         Suppose you buy a 3 year 6% bond that has a YTM of 5%. What is the price of the bond? 3.         Suppose you buy a 10 year 9% bond that has a YTM of 11%. What is the price of the bond? 4.         Suppose you buy a 30 year 7% bond that has...
Two 10 year bonds with a 5% YTM experience a sudden increase to 6% YTM.  Bond A...
Two 10 year bonds with a 5% YTM experience a sudden increase to 6% YTM.  Bond A is a zero coupon bond -- a bond which pays no coupon -- while Bond B is a 5% coupon bond.  Which bond experiences a larger percentage change in price?  Why?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT