chapter 3

QUESTIONS 1. Write down the formula that is used to calculate the yield to maturity on a 20-year 10% coupon bond with $1,000 face value that sells for $2,000. 2. If there is a decline in interest rates, which would you rather be holding, long-term bonds or short-term bonds? Why? Which type of bond has the greater interest-rate risk? 3. A financial adviser has just given you the following advice: "Long-term bonds are a great investment because their interest rate is over 20%." Is the finan- cial adviser necessarily right? 4. If mortgage rates rise from 5% to 10%, but the expected rate of increase in housing prices rises from 2% to 9%, are people more or less likely to buy houses