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Author Question: Assume that interest rates on 30-year Treasury and corporate bonds with different ratings, all of ... (Read 59 times)

Facerro

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on: Aug 7, 2023

Question 1

Assume that all interest rates in the economy decline from 12% to 11%. Which bond would have the largest percentage increase in price?

◦

a 25-year zero coupon bond


◦

a 20-year bond with a 6% coupon


◦

a 10-year bond with a 12% coupon


◦

a 7-year bond with a 16% coupon



Question 2

Assume that interest rates on 30-year Treasury and corporate bonds with different ratings, all of which are noncallable, are as follows:
      
 T-bond = 8.85%A = 10.50%
 AAA = 9.31%BBB = 11.64%
      

What most probably caused the differences in rates among these issues?


◦

default risk differences


◦

real risk-free rate differences


◦

interest rate risk differences


◦

inflation differences

Financial Management: Theory and Practice ¦ Brigham, Ehrhardt, Gessaroli, Nason ¦ 4th Edition
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Marked as best answer by Facerro on Aug 7, 2023

rika06@comcast.net

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Reply #1 on: Aug 7, 2023
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Facerro

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Reply 2 on: Aug 7, 2023
Gracias!

Missbam101

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Reply 3 on: Yesterday
Great answer, keep it coming :)

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