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If interest rates rose, would you be happier if you have a low-coupon bond or a high-coupon bond?
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- If you expect interest rates to rise, do you want to buy bonds now?If you buy a callable bond and interest rates decline, will the value of your bond rise by asmuch as it would have risen if the bond had not been callable? Explain.We know that a vanilla bond with a coupon rate below the market rate of interest will sell for a discount and that a vanilla bond with a coupon rate above the market rate of interest will sell for a premium. What kind of bond or loan will sell at its par valueregardless of what happens to the market rate of interest?
- What is the connection between the interest rate and the price of a fixed coupon bond? Why is this relationship still going strong?Explain whether the following statements are true or false. Justify your answer. a) If interest rate increase the price of a shorter maturity bond will decrease more then a longer maturity bond.Bonds. What is the relationship between the price of a bond and its YTM? All else being the same, which has more interest rate risk, a long-term bond or a short-term bond? What about a low coupon bond compared to a high coupon bond? What about a long-term, high coupon compared to a short-term, low coupon bond? Why?
- Do bondholders fare better when the yeild to maturity increases or when it decreases? Why?Is the price of a long term bond or the price of a short term security more sensitive to a change in interest rates? Why?Describe the relationship between bond prices and inclation. would you be more inclined to buy bonds if you anticipate interest rates to rise fall.