The duration of a bond is ________. a. A measurement of the bonds overall risk b. Synonymous
Question:
The duration of a bond is ________.
a. A measurement of the bond’s overall risk
b. Synonymous with the bond’s term
c. A measurement of how long an investor holds the bond
d. A measurement of the bond’s sensitivity to interest rate changes
Step by Step Answer:
d A measurement of the bonds sensitivity t...View the full answer
Related Video
Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.
Students also viewed these Business questions
-
Create spreadsheet models to price coupon bonds, compute duration, and examine reinvestment risk. The purpose of this assignment is to get comfortable with basic spreadsheet modeling and to reinforce...
-
The duration of a 20-year, 8 percent coupon Treasury bond selling at par is 10.292 years. The bonds interest is paid semiannually, and the bond qualifies for delivery against the Treasury bond...
-
The following table provides prices of 4 government bonds with different time to maturity, with a coupon of 8% and a par value of $100. Time to maturity 2 3 4 Price $ 105.882 $ 109.643 $ 110.024 $...
-
The difference between case law and common is which of the following? O Common law creates law and case law interprets existing law. There is no difference. Case law is criminal law and common law is...
-
The kittiwake is a seagull whose mating behavior is basically monogamous. Normally, the birds separate for several months after the completion of one breeding season and reunite at the beginning of...
-
(a) Draw a free-body diagram for segment \(\mathrm{A}\) of the string at instant \(t\) in Figure 16.39. What is the vector sum of the forces exerted on A? (b) What does your answer to part \(a\) tell...
-
An air cushion vehicle is supported by forcing air into the chamber created by a skirt around the periphery of the vehicle as shown in Fig. P3.116. The air escapes through the 3-in. clearance between...
-
You are considering opening a bagel restaurant aimed primarily at the breakfast trade. Youll sell bagels, coffee, and other items in relatively fixed proportions to one another. For each bagel sold,...
-
5. Find a theta notation for the following: T(n) = 4T(n/2) + n Explain how you got your solution. 6. Given the following code: fun (n) { if (n == 1) return; else { for x = 1 to n { x = x + 1; print...
-
Ten years ago you purchased a small apartment complex for $900,000. You borrowed $700,000 at 5 percent for 25 years with monthly payments.-The original depreciable basis was $750,000 and you have...
-
The price-to-earnings (P/E) ratio is _______________. a. Used to calculate a companys book value b. A multiplier used in enterprise valuation c. Only applied when valuing preferred stock d. A metric...
-
A call feature ________. a. Is desirable to an investor b. May cause additional risk for the bond issuer c. May cause additional risk for an investor d. Both A and B
-
Doug incurred and paid the following expenses during the year: $50 for a ticket for running a red light while he was commuting to work. $100 for a ticket for parking in a handicapped parking space....
-
viterra inc enters into a long term debt of $10000000 with interest payable semi annually at 9.5% c.s.a. the principal payment is due to 8 years. it establishes a sinking fund to earn 8.75% c.s.s...
-
How do contemporary social movements and grassroots activism challenge existing power structures and create new spaces for political participation and social change, and what factors contribute to...
-
Fleur-de-Lis is a boutique bakery specializing in cupcakes. The bakers at Fleur-de-Lis like to experiment with different combinations of four major ingredients in its cupcakes and collect customer...
-
Fitness Fanatics is a regional chain of health clubs. The managers of the clubs, who have authority to make investments as needed, are evaluated based largely on return on investment (ROI). The...
-
How does the commodification of culture in a capitalist society impact the preservation of traditional practices, values, and norms, and what role do cultural entrepreneurs and grassroots movements...
-
Draw the condensed structure of a compound that contains only carbon and hydrogen atoms and that has a. Three sp3 hybridized carbons. b. One sp3 hybridized carbon and two sp2 hybridized carbons. c....
-
Identify the source of funds within Micro Credit? How does this differ from traditional sources of financing? What internal and external governance mechanisms are in place in Micro Credit?
-
Describe the advantages and disadvantages of the approaches to international market entry discussed in this chapter.
-
Hydropump, Inc., produces and sells high-quality pumps to business customers. Its marketing research shows a growing market for a similar type of pump aimed at final consumersfor use with...
-
Explain how adjusting the customer service level could improve a marketing mix. I l lustrate.
-
Roberta Bondar is travelling in her space craft around a distant planet. The planet has a radius R' and she is at an altitude of 2R' above its surface, coasting at some constant speed in a circular...
-
Some enterprising physics students working on a catapult decide to have a water balloon fight in the school hallway. The ceiling is of height 3 . 4 m, and the balloons are launched at a velocity of 9...
-
1-Define electric fields and how it helps us understand electricity. 2-Electric fields are represented as a physical effect of a configuration of charges that is created by the attraction of electric...
Study smarter with the SolutionInn App