Suppose a mutual fund that invests in bonds purchased a bond when its yield to maturity is higher than the coupon rate. The investor should expect the bond’s price to: exceed the face value at maturity. decline over time, reaching par value at maturity. increase over time, reaching par value at maturity. be less than the face value at maturity.
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Suppose a mutual fund that invests in bonds purchased a bond when its yield to maturity is higher than the coupon rate. The investor should expect the
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exceed the face value at maturity. |
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decline over time, reaching par value at maturity. |
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increase over time, reaching par value at maturity. |
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be less than the face value at maturity. |
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- If a bond’s coupon rate is greater than the investor’s required rate of return on the bond, would the bond’s price be greater than or less than its par value? Explain.The coupon rate is greater than the yield to maturity when a bond sells at a premium. Select one: True FalseAs the price of a bond □ a. rises; rises Ob. falls; falls c. rises; falls O d. falls; rises and the expected return , bonds become more attractive to investors and the quantity demanded rises.
- A bond will be priced at a discount to par value if its coupon rate is less than its yield-to-maturity (YTM). Select one: True FalseCoupon payments are fixed, but the percentage return that investors receive varies based on market conditions. This percentage return is referred to as the bond's yield. Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? O The bond is callable. O The probability of default is zero. Consider the case of Demed Inc.: Demed Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $950.35. However, Demed Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Demed Inc.'s bonds? Value YTM YTC If interest rates are expected to remai constant, what is the best estimate of the remaining life left for Demed Inc.'s bonds? O 5 years O 13 years O 18 years O 8 years…For the yield-to-maturity (YTM) to qual the actual compound return an investor realizes on an investment in a coupon bond, we must assume: O A. cash flows will be paid as promised. B. The bond will be held until maturity. C. cash flows will be reinvested at the YTM rate. D. All of the above.
- Select all of those that are correct: A) prices of zero coupon bonds increase as the time to maturity decreases. B) prices of zero coupon bonds increase as the time to maturity increases. C) prices of zero coupon bonds converge to the bond's face value as maturity approaches. D) prior to maturity, the price of a zero coupon bond is less than the bond's face valueFor a discount bond, the current yield isthe yield to maturity, and the coupon rate is the yield to maturity. Select one: O a. less than; less than O b. equal to; equal to O c less than; greater than O d. greater than; greater than O e. greater than; less thanChoose from liquidity premium, taxability premium, default risk premium, maturity premium. 1.For a long term bond, bondholders demand a higher yield as compensation is called?2.When a bond has poor credit rating, bondholders demand a higher yield as compensation is called?3.When a bond has less frequent trading, bondholders demand a higher yield as compensation is called?
- an investment in a coupon bond will provide the investor with a return equal to the bond's yield to maturity at the time of purchase if:The bond is not called for redemption at a price that exceeds its par valueCoupon payments are fixed, but the percentage return that investors receive varies based on market conditions. This percentage return is referred to as the bond’s yield. Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? The bond has an early redemption feature. The bond will not be called. Consider the case of BTR Co.: BTR Co. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,100.35. However, BTR Co. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on BTR Co.’s bonds? Value YTM YTC If interest rates are expected to remain constant, what is the best estimate of the remaining life left…For a conventional bond paying a fixed coupon rate, an INCREASE in the risk of default would lead to: a. A fall in the market price, to ensure that bondholders receive a higher yield. b. A rise in the market price, to ensure that bondholders receive a higher yield. c. A fall in the market price, to ensure that bondholders receive a lower yield. d. A rise in the market price, to ensure that bondholders receive a lower yield.