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- H4. Which statement is true? a. Duration is good for estimating the impact of large interest rate changes. b. The duration estimate is less accurate, the less convex the bond price/yield relationship. c. Effective duration is used to measure the price risk of the bonds with call options. d. The tangent line always overestimates the actual price34. When interest rate decreases, the portfolio manager should a. decrease the duration of the bond portfolio b. increase the duration of the bond portfolio c. do nothing d. noneDo solve all parts A. What risk premium do you use? Why? B. Why is the geometric mean lower than the arithmetic mean for both bonds and bills? C. If you had to use a risk premium with the longer periods, what biases will the investor have?
- Zero coupon bonds are disadvantageous to the issuing firm if interest rates fall. Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. a b True False3 Explain Why you agree or disagree with the following statements. The answer should not be more than 3 sentences. Be specific in your answer and write only the most relevant explanations ( 1. If a bond sells at a discount, yield to call is more likely to occur. 2. A firm should select the capital structure that is fully unlevered. 3. Leveraged beta represents fundamental operational risk. 4. All other things held constant; the future value of an ordinary annuity is always having a higher future value than annuity due. MM Proposition i with no tax supports the argument that a firm should borrow money to the point where the tax benefit from debt is equal to the cost of the increased probability of financial distress28. Which of the following is not correct regarding the risk considerations of a bond portfolio? O a. Prepayment risk tends to be higher when interest rate drops b. Interest rate risk measures portfolio exposure to a parallel shift in the yield curve O c. Optionality risk is the portfolio exposure to the default behavior of the counterparty O d. Spread risk should be considered as the spreads between the treasuries and non-treasuries vary all the time Oe. Convexity risk happens when bond duration also changes with the interest rate
- Give typing answer with explanation and conclusion Question 16: Which of the following statements about convexity are true? I. Convexity accounts for the curvilinear function of bond rates II. A bond with a very low coupon and a long maturity will have low convexity III. A bond investor would seek to avoid bonds with high convexity. IV. Convexity is defined as the rate of change of the slope of the price/yield curve V. There is an inverse relationship between maturity and convexity a. I. b. II. III. IV. c. I. IV. d. II. IV. V. e. I. II. IV. V.1. Which of the following is correct? Group of answer choices 1. The lower the price you pay for a bond, the greater is your return. 2. A bond is overpriced when its value is greater than its price. 3. A fairly priced bond has a price equal to its face. 4. The value of a bond can be determined by the present value of all coupon payments and the present value of principal payment at maturity date.A Moving to another question will save this response. Question 7 A callable bonds is an advantage to the therefore their yields are than the non-callable bonds. O Issuer, higher. O Bondholder, higher. O Bondholder, lower. Issuer, lower. A Moving to another question will save this response.
- Which of the following statements is false? O None of the choices. O Factors affecting bond yields include default risk, liquidity, interest rate risk, and expected future inflation. Bonds that don't payout interim coupon payments are called zero-coupon bonds. O YTM is the discount rate that equates the present value of future cash flows and current price of the bond. C If coupon rate is equal to YTM, the bond price equals the par value. Which of the following statement regarding common stock is false? C You may or may not get paid a dividend by owning a common stock. O If you don't receive a dividend, you can complain to your friend but cannot make any legal action. C Owning a common stock essentially means that you own a part of the firm. C By owning a common stock, you can cast your vote in a shareholder's meeting. C None of the choices.D3) Finance Suppose Bond A carried a higher yield than comparable Bond B because of investors’ uncertainty about the future of company B. If you were an investment manager who thought the market was overplaying these fears. In particular, if you thought that yields on Bond A would fall by 50 basis points. Which bonds would you buy or sell? Explain in words.Explain Why you agree or disagree with the following statements. The answer should not be more than 3 sentences. Be specific in your answer and write only the most relevant explanations If a bond sells at a discount, yield to maturity is less likely to occur. All other things held constant; the future value of an ordinary annuity is always having a lower future value than future value of annuity due. A firm should select the capital structure that is fully unlevered