1. Arbitrage insures that equal cash flows (of equal risk) sell at _______________ and unequal cash flows...

Question:

1. Arbitrage insures that equal cash flows (of equal risk) sell at _______________ and unequal cash flows (of equal risk) sell at ___________.

2. What is the difference between the yield to maturity and the yield to call?

3. When would you expect a bond to be called when interest rates have increased after issuance or decreased after issuance?

4. To value a bond you need to bring the future interest payment and maturity value back to present. When you bring these future cash flows back to present do you use the coupon rate or the market yield as the discounting rate? Pick one

5. Which bond should change more with a 1% change in interest rates a 20 year 8% bond or a five year 8% bond?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...