BUSI 420 Read & Interact Jordan, Miller Jr., & Dolvin Chapter 10 solutions complete answers

BUSI 420 Read & Interact Jordan, Miller Jr., & Dolvin Chapter 10 solutions complete answers

 

A bond's   duration is a measure of its sensitivity to changes in bond yields.

 

True or false: All else equal, the price of a discount bond will decline over time as it approaches maturity.

 

All else equal, the higher a bond's coupon, the        (shorter/longer) its duration.

 

A bond with a YTM of 8% and a coupon rate of 10% will trade at (a) _______.

 

      (Long/Short)-term bonds are more sensitive to changes in interest rates.

 

Burton Malkiel identified how many bond price theorems?

 

The most common type of bond is the so-called        bond.

 

The bond's annual coupon divided by its        value is called the coupon rate. (Enter one word per blank.)

 

The ____ is the discount rate that equates a bond's price with the present value of its cash flows. It is also called the promised yield.

 

A bond with a YTM of 10% and a coupon rate of 10% will trade at (a) _______.

 

       (Low/High) coupon bonds are more sensitive to changes in interest rates.

 

True or false: The dirty price is generally higher than the clean price.

 

A straight bond is an IOU that obligates the issuer to pay the bondholder a _____ at the bond's maturity along with constant, periodic interest payments during the life of the bond.

 

The coupon rate is the bond's annual coupon _____, whereas the current yield is the bond's annual coupon divided by its market price.

 

True or false: The price of a bond is the present value of its coupons and par value.

 

True or false: Callable bonds always have a call price equal to par value.

 

A bond with a YTM of 10% and a coupon rate of 8% will trade at (a) _______.

 

The quoted price for a bond is the        (clean/dirty) price, and the price you actually pay is the        (clean/dirty) price.

 

An issuer would typically call bonds after a(n) _________ in market interest rates.

 

A bond is        if the issuer has the right to buy it back before it matures.

 

For a discount bond, the _______ will likely be the most appropriate measure.

 

All else equal, an investor who sells a bond following a decline in interest rates will have a realized yield that is _________ than the promised YTM.

 

The call        period is the time during which a callable bond cannot be called.

 

A bond's        is a measure of its sensitivity to changes in bond yields.

 

True or false: Modified duration is a variation of Macaulay duration.

 

The first fundamental principle for calculating duration of a bond concerns the duration of a zero coupon bond. The second principle concerns the duration of a coupon bond with _____.

 

For a premium bond, the _______ will likely be the most appropriate measure.

 

True or false: The longer a bond's maturity, the longer is its duration.

 

True or false: An investor is guaranteed to earn at least the YTM.

 

The yield value of a 32nd is equal to the change in yield to maturity that would equal a 1/        change in bond price.

 

True or false: Two bonds with the same maturity will also have the same duration.

 

True or false: The uncertainty about future portfolio value that results from the need to reinvest bond coupons at yields not known in advance is called price risk.

 

The equation for the modified duration is as follows:

 

True or false: Price risk and reinvestment risk tend move in opposite directions, meaning they tend to offset each other.

 

True or false: The Macaulay duration of a zero coupon bond is equal to its maturity.

 

All else equal, the higher the YTM, the        (longer/shorter) the duration.

 

The strategy of periodically rebalancing a dedicated bond portfolio to maintain a portfolio duration matched to a specific target date is called _____ immunization.

 

The change in bond price resulting from a change in yield to maturity of one basis point is the ________.

 

The uncertainty about the future or target date portfolio value that results from the need to reinvest bond coupons at yields that cannot be predicted in advance is called _____ risk.

 

To immunize a dedicated portfolio, an investor needs to match its __________ to the portfolio's target date.

 

Dynamic immunization is the periodic rebalancing of a dedicated bond portfolio to maintain a        that matches the target maturity date.