Chapter 10 Bond Prices and Yields Answer Key
E. modify the portfolio so the duration becomes 8.6 years
See Section 10.8
Bloom's: Knowledge
Learning Objective: 10-03 Interest rate risk and Malkiel's theorems. Level of Difficulty: Core
Section: 10.8
49. Dynamic immunization is primarily aimed at reducing which one of the following risks? A. default B. liquidity C. reinvestment D. inflation E. taxation See Section 10.8 Bloom's: Knowledge
Learning Objective: 10-03 Interest rate risk and Malkiel's theorems. Level of Difficulty: Core
Section: 10.8
Topic: Dynamic Immunization
50. A bond pays semiannual interest payments of $37.50. What is the coupon rate if the par value is $1,000? A. 3.75 percent B. 4.50 percent C. 6.80 percent D. 7.50 percent E. 10.38 percent
Coupon rate = ($37.50 2)/$1,000 = 7.50 percent
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Core
Section: 10.1 Topic: Coupon Rate
51. A bond has a face value of $1,000 and a coupon rate of 5.5 percent. What is your annual interest payment if you own 8 of these bonds?
A. $110 B. $220 C. $330 D. $440 E. $880 Annual coupon = $1,000 .055 x 8 = $440 Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Core
Section: 10.1 Topic: Annual Coupon
52. A bond has a par value of $1,000 and a coupon rate of 6 percent. What is the dollar amount of each semiannual interest payment if you own 6 of these bonds?
A. $180 B. $210 C. $320 D. $420 E. $840 Semiannual coupon = [($1,000 .06)/2] x 6 = $180 Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Core
Section: 10.1
53. A bond has a par value of $1,000, a market price of $1,012, and a coupon rate of 5.75 percent. What is the current yield?
A. 5.68 percent
B. 5.71 percent
C. 5.75 percent
D. 5.78 percent
E. 5.80 percent
Current yield = (.0575 $1,000)/$1,012 = 5.68 percent
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Core
Section: 10.1 Topic: Current Yield
54. A 6.5 percent coupon bond has a face value of $1,000 and a current yield of 6.61 percent. What is the current market price?
A. $983.36 B. $989.18 C. $1,011.82 D. $3,933.43 E. $4,067.47 Market price = (.065 $1,000)/.0661 = $983.36 Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Core
Section: 10.1 Topic: Current Yield
55. A bond has 8 years to maturity, a 7 percent coupon, a $1,000 face value, and pays interest semiannually. What is the bond's current price if the yield to maturity is 6.91 percent?
A. $799.32
B. $848.16
C. $917.92
D. $1,005.46
E. $1,009.73
Using a financial calculator:
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.2 Topic: Bond Price
56. The Country Inn has bonds outstanding with a par value of $1,000 each and a 6.5 percent coupon. The bonds mature in 7.5 years and pay interest semiannually. What is the current value of each of these bonds if the yield to maturity is 6.8 percent?
A. $982.60
B. $1,003.29
C. $1,005.88
D. $1,008.36
E. $1,009.47
Using a financial calculator:
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.2 Topic: Bond Price
57. Last year, BT Motors issued 10-year bonds with a 9 percent coupon and semi-annual interest payments. What is the market price of a $1,000 bond if the yield to maturity is 8.9 percent? A. $1,003.97 B. $1,006.53 C. $1,042.89 D. $1,414.14 E. $1,585.36
Using a financial calculator:
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.2 Topic: Bond Price
58. A $1,000 face value bond matures in 9 years, pays interest semiannually, and has a 6.5 percent coupon. The bond currently sells for $1,015. What is the yield to maturity?
A. 6.17 percent
B. 6.22 percent
C. 6.28 percent
D. 6.34 percent
E. 6.37 percent
Using a financial calculator:
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.2
Topic: Yield to Maturity
59. A $1,000 par value 5 percent Treasury bond pays interest semiannually and matures in 7.5 years. What is the yield to maturity if the bond is currently quoted at a price of 112.34?
A. 3.14 percent
B. 3.18 percent
C. 3.23 percent
D. 6.28 percent
E. 6.36 percent
Using a financial calculator:
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.2
60. A $1,000 semiannual coupon bond matures in 13 years, has a coupon rate of 7.5 percent, and a market price of $982. What is the yield to maturity?
A. 3.86 percent
B. 4.01 percent
C. 4.08 percent
D. 7.69 percent
E. 7.72 percent
Using a financial calculator:
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.2
Topic: Yield to Maturity
61. An 8.5 percent coupon bond pays interest semiannually and has 10.5 years to maturity. The bond has a face value of $1,000 and a market value of $878.50. What is the yield to maturity? A. 5.16 percent B. 8.37 percent C. 8.78 percent D. 10.43 percent E. 11.21 percent
Using a financial calculator:
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.2
62. A $1,000 par value bond is currently valued at $1,033.53. The bond pays interest semi- annually, has 6 years to maturity, and has a yield to maturity of 7.3 percent. The coupon rate is _____ percent and the current yield is _____ percent.
A. 6.80; 7.21
B. 8.00; 7.74
C. 8.00; 7.81
D. 8.50; 8.22
E. 8.50; 8.30
Using a financial calculator:
Coupon rate = ($40 2)/$1,000 = 8.0 percent Current yield = ($40 2)/$1,033.53 = 7.74 percent
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.1 Topic: Yields
63. A $1,000 face value bond is selling for $1,016.36. The bond pays interest semiannually and has 3.5 years to maturity. The yield to maturity is 5.48 percent. The current yield is _____ percent and the coupon rate is _____ percent.
A. 5.86; 5.90
B. 5.90; 6.00
C. 5.90; 5.86
D. 6.00; 5.90
E. 6.00; 5.86
Using a financial calculator:
Current yield = ($30 2)/$1,016.36 = 5.90 percent Coupon rate = ($30 2)/$1,000 = 6.0 percent
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.1 Topic: Yields
64. The outstanding bonds of International Plastics mature in 4 years and pay semiannual interest payments of $32.50 on a $1,000 face value bond. The bonds are currently selling for $1,008.64. The coupon rate is _____ percent, the current yield is _____ percent, and the yield to maturity is _____ percent. A. 6.50; 6.44; 6.25 B. 6.50; 6.56; 6.75 C. 6.44; 6.50; 6.75 D. 6.75; 6.56; 6.50 E. 6.75; 6.81; 6.95
Using a financial calculator:
Coupon rate = ($32.50 2)/$1,000 = 6.50 percent Current yield = ($32.50 2)/$1,008.64 = 6.44 percent Yield to maturity = 6.25 percent
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.2 Topic: Yields
65. A bond has a $1,000 par value, semiannual interest payments of $40, and a current market value of $1,054. The bonds mature in 12.5 years. The coupon rate is _____ percent, the current yield is _____ percent, and the yield to maturity is _____ percent.
A. 8.00; 7.67; 7.72
B. 8.00; 7.72; 7.64
C. 8.00; 7.59; 7.33
D. 8.50; 7.87; 7.73
E. 8.50; 8.12; 8.19
Coupon rate = ($40 2)/$1,000 = 8.00 percent Current yield = ($40 2)/$1,054 = 7.59 percent Yield to maturity = 6.37 percent
Using a financial calculator:
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.2 Topic: Yields
66. Alaskan Motors has outstanding bonds that mature in 14 years and pay $32.50 every 6 months in interest. The par value is $1,000 per bond and the market value is $981. The coupon rate is _____ percent, the current yield is _____ percent, and the yield to maturity is _____ percent. A. 6.50; 6.37; 6.67 B. 6.50; 6.63; 6.71 C. 6.50; 6.67; 6.71 D. 7.00; 6.37; 6.67 E. 7.00; 6.67; 6.71
Coupon rate = ($32.50 2)/$1,000 = 6.50 percent Current yield = ($32.50 2)/$981 = 6.63 percent Yield to maturity = 6.71 percent
Using a financial calculator:
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.2 Topic: Yields
67. You are considering two bonds. Both have semi-annual, 8 percent coupons, $1,000 face values, and yields to maturity of 7.5 percent. Bond S matures in 4 years and Bond L matures in 8 years. What is the difference in the current prices of these bonds?
A. $10.51
B. $11.33
C. $11.52
D. $12.67
E. $12.88
Using a financial calculator:
Using a financial calculator:
Difference = $1,029.68 - $1,017.01 = $12.67
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.2 Topic: Premium Bond
68. Two bonds have a coupon rate of 7 percent, semi-annual payments, face values of $1,000, and yields to maturity of 7.4 percent. Bond S matures in 5 years and bond L matures in 10 years. What is the difference in the current prices of these bonds?
A. $8.26
B. $9.19
C. $9.40
D. $10.38
E. $11.45
Using a financial calculator:
Using a financial calculator:
Difference = $983.53 - $972.08 = $11.45
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.2 Topic: Discount Bond
69. You want to buy a bond that has a quoted price of $923. The bond pays interest
semiannually on April 1 and October 1. The coupon rate is 6 percent. What is the clean price of this bond if today's date is June 1? Assume a 360-day year.
A. $927.62
B. $923.00
C. $923.23
D. $936.85
E. $1,076.83
Clean price = Quoted price = $923
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Core
Section: 10.2 Topic: Clean Price
70. You are buying a bond at a quoted price of $887. The bond has a 8.0 percent coupon and pays interest semiannually on February 1 and August 1. What is the dirty price of this bond if today is April 1? Assume a 360-day year.
A. $896.17 B. $900.33 C. $913.67 D. $938.50 E. $942.00 Dirty price = $887 + [(.08 $1,000)/2] 2/6 = $900.33 Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Core
Section: 10.2 Topic: Dirty Price
71. Green Roofing Materials has 7.5 percent bonds outstanding that are currently priced at $1,068 each. The bonds pay interest on December 1 and June 1. What is the dirty price of this bond if today's date is May 1? Assume a 360-day year.
A. $1,099.25 B. $1,105.75 C. $1,112.00 D. $1,118.25 E. $1,124.50 Dirty price = $1,068 + [(.075 $1,000)/2] 5/6 = $1,099.25 Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Core
Section: 10.2 Topic: Dirty Price
72. You own a bond that pays semiannual interest payments of $40. The bond is callable in 3 years at a premium of $80. What is the callable bond price if the yield to call is 9.7 percent?
A. $995.46
B. $1,016.86
C. $1,119.02
D. $1,124.87
E. $1,220.87
Using a financial calculator:
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.3
73. Ted owns a bond which is callable in 2.5 years. The bond has a 6 percent coupon, pays interest semiannually, has a par value of $1,000, and has a yield to call of 6.3 percent. What is the call premium if the bond currently sells for $1,044.54?
A. $50
B. $60
C. $70
D. $75
E. $80
Using a financial calculator:
Call Premium = 1060 - 1000 = $60
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.3
74. Cochran's Furniture Outlet is issuing 30-year, 10 percent callable bonds. These bonds are callable in 5 years with a call premium of $50. The bonds are being issued at par and pay interest semi-annually. What is the yield to call?
A. 10.78 percent
B. 11.72 percent
C. 12.00 percent
D. 12.47 percent
E. 12.89 percent
Using a financial calculator:
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.3 Topic: Yield to Call
75. Blue Water Homes has 8 percent bonds outstanding that mature in 13 years. The bonds pay interest semiannually. These bonds have a par value of $1,000 and are callable in 2 years at a premium of $75. What is the yield to call if the current price is equal to 103.25 percent of par? A. 7.51 percent B. 7.70 percent C. 8.06 percent D. 8.98 percent E. 9.66 percent
Using a financial calculator:
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.3 Topic: Yield to Call
76. Will owns a bond with a make-whole call provision. The bond matures in 14 years but is being called today. The coupon rate is 9 percent with interest paid semiannually. What is the current call price if the applicable discount rate is 7.5 percent and the make-whole call provision applies? A. $932.84 B. $957.11 C. $1,074.13 D. $1,110.28 E. $1,128.66
Using a financial calculator:
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.3
77. Ferrous Metals has bonds outstanding which it is calling today under the make-whole call provision. The bonds mature in 6 years, have a 10 percent coupon, pay interest semiannually, and have a par value of $1,000. What is today's call price given that the applicable discount rate is 7.20 percent? A. $879.12 B. $968.35 C. $1,015.55 D. $1,134.49 E. $1,172.71
Using a financial calculator:
Bloom's: Application
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Intermediate
Section: 10.3
78. Alex purchased a $1,000 par value bond one year ago at a price of $1,008. At the time of purchase, the bond had 14 years to maturity and a 6 percent, semiannual coupon. Today, the bond has a yield to maturity of 6.5 percent. What is his realized yield as of today?
A. 0.43 percent
B. 0.86 percent
C. 1.29 percent
D. 1.72 percent
E. 2.60 percent
Using a financial calculator:
Bloom's: Application
Learning Objective: 10-04 How to measure the impact of interest rate changes on bond prices. Level of Difficulty: Intermediate
Section: 10.4 Topic: Realized Yield
79. One year ago, you purchased a $1,000 face value bond at a yield to maturity of 9.45 percent. The bond has a 9 percent coupon and pays interest semiannually. When you purchased the bond, it had 12 years left until maturity. You are selling the bond today when the yield to maturity is 8.20 percent. What is your realized yield on this bond?
A. 14.54 percent
B. 15.27 percent
C. 16.35 percent
D. 17.60 percent
E. 18.11 percent
Using a financial calculator:
Bloom's: Application
Learning Objective: 10-04 How to measure the impact of interest rate changes on bond prices. Level of Difficulty: Intermediate
Section: 10.4 Topic: Realized Yield
80. You own a 7 percent, semiannual coupon bond that matures in 8 years. The par value is $1,000 and the current yield to maturity is 7.6 percent. What will the percentage change in the price of your bond be if the yield to maturity suddenly increases by 75 basis points?
A. -4.37 percent
B. -4.49 percent
C. -4.54 percent
D. -4.61 percent
E. -4.77 percent
Percentage change in bond price = (922.35 - $964.52)/$964.52 = -4.37 percent
Bloom's: Application
Learning Objective: 10-03 Interest rate risk and Malkiel's theorems. Level of Difficulty: Intermediate
Section: 10.4
81. Phil owns a 7 percent, semiannual coupon bond that has a face value of $1,000 and matures in 16 years. The bond has a current yield to maturity of 7.1 percent. What will the percentage change in the price of his bond be if interest rates decrease by 50 basis points?
A. 4.33 percent
B. 4.68 percent
C. 4.91 percent
D. 5.17 percent
E. 5.26 percent
Using a financial calculator:
Using a financial calculator:
Percentage change in bond price = ($1,039.16 - $990.53)/$990.53 = 4.91 percent
Bloom's: Application
Learning Objective: 10-03 Interest rate risk and Malkiel's theorems. Level of Difficulty: Intermediate
Section: 10.4
82. A $1,000 face value bond has a 7 percent coupon and pays interest semiannually. The bond matures in 2 years and has a yield to maturity of 6.8 percent. What is the Macaulay duration? A. 1.80 years B. 1.85 years C. 1.90 years D. 1.93 years E. 1.97 years Bloom's: Application
Learning Objective: 10-03 Interest rate risk and Malkiel's theorems. Level of Difficulty: Intermediate
Section: 10.5
83. A zero-coupon bond has a par value of $1,000 and matures in 4.5 years. The yield to maturity is 6.4 percent. What is the Macaulay duration?
A. 3.67 years
B. 3.81 years
C. 3.92 years
D. 4.26 years
E. 4.50 years
The duration of a zero-coupon bond is equal to the time to maturity. Thus, the answer is 4.5 years.
Bloom's: Application
Learning Objective: 10-03 Interest rate risk and Malkiel's theorems. Level of Difficulty: Core
Section: 10.5
Topic: Macaulay Duration
84. A bond has a Macaulay duration of 5.75 years. What will be the percentage change in the bond price if the yield to maturity increases from 6 percent to 6.4 percent?
A. -2.23 percent B. -2.41 percent C. -3.30 percent D. -3.38 percent E. -3.46 percent Bloom's: Application
Learning Objective: 10-03 Interest rate risk and Malkiel's theorems. Level of Difficulty: Core
Section: 10.5
85. The price of a bond decreased by 1.45 percent in response to an increase in the yield to maturity from 7.2 to 7.6 percent. What is the bond's Macaulay duration?
A. 3.39 years B. 3.76 years C. 3.92 years D. 4.04 years E. 4.16 years Bloom's: Application
Learning Objective: 10-03 Interest rate risk and Malkiel's theorems. Level of Difficulty: Core
Section: 10.5
Topic: Macaulay Duration
86. A bond has a Macaulay duration of 7.5, a yield to maturity of 6.6 percent, a coupon rate of 7.5 percent, and semiannual interest payments. What is the bond's modified duration?
A. 6.59 years B. 6.84 years C. 6.92 years D. 7.06 years E. 7.26 years Bloom's: Application
Learning Objective: 10-03 Interest rate risk and Malkiel's theorems. Level of Difficulty: Core
Section: 10.5
87. A 6 percent, semiannual coupon bond has a yield to maturity of 7.4 percent and a
Macaulay duration of 5.7. The bond has a modified duration of _____ and will have a _____ percentage increase in price in response to a 25 basis point decrease in the yield to maturity.
A. 5.4829; 1.35
B. 5.4966; 1.32
C. 5.4966; 1.37
D. 5.3073; 1.33
E. 5.3073; 1.38
Percentage change in bond price = -5.4966 -.0025 = 1.37 percent
Bloom's: Application
Learning Objective: 10-03 Interest rate risk and Malkiel's theorems. Level of Difficulty: Core
Section: 10.5
Topic: Modified Duration
88. A bond has a modified duration of 7.22 and a yield to maturity of 8.9 percent. If interest rates increase by 75 basis points, the bond's price will decrease by _____ percent.
A. -0.46
B. -0.54
C. -4.60
D. -5.42
E. -6.18
Percentage change in bond price = -7.22 .0075 = -5.42 percent
Bloom's: Application
Learning Objective: 10-03 Interest rate risk and Malkiel's theorems. Level of Difficulty: Core
Section: 10.5
89. The outstanding bonds of Alpha Extracts have a yield to maturity of 8.4 percent and a modified duration of 10.8. If the yield to maturity instantly decreased to 7.5 percent, the bond's price would increase/decrease by _____ percent.
A. -10.08
B. -9.67
C. 8.45
D. 9.72
E. 10.08
Percentage change in bond price = -10.8 (.075 - .084) = 9.72 percent
Bloom's: Application
Learning Objective: 10-03 Interest rate risk and Malkiel's theorems. Level of Difficulty: Core
Section: 10.5
Topic: Modified Duration
90. A bond has a modified duration of 6.87 years, a par value of $1,000, and a current market value of $1,016. What is the dollar value of an 01?
A. $0.0698 B. $0.0700 C. $0.6980 D. $0.7001 E. $0.7023 Dollar value of an 01 » 6.87/100 $1,016 0.01 = $0.6980 Bloom's: Application
Learning Objective: 10-03 Interest rate risk and Malkiel's theorems. Level of Difficulty: Core
Section: 10.6
91. Jefferson-Smith bonds are quoted at a price of $952.42 for a $1,000 face value bond. These bonds have a modified duration of 9.84. What is the dollar value of an 01?
A. $0.0977 B. $0.0963 C. $0.1028 D. $0.9372 E. $0.9767 Dollar value of an 01 » 9.84/100 $952.42 .01 = $0.9372 Bloom's: Application
Learning Objective: 10-03 Interest rate risk and Malkiel's theorems. Level of Difficulty: Core
Section: 10.6
Topic: Dollar Value of an 01
92. A bond has a dollar value of an 01 of .0634. What is the yield value of a 32nd?
A. .4608 B. .4921 C. .4929 D. .5047 E. .5084 Yield value of a 32nd » 1/(32 .0634) = .4929 Bloom's: Application
Learning Objective: 10-03 Interest rate risk and Malkiel's theorems. Level of Difficulty: Core
Section: 10.6
Topic: Yield Value of a 1/32nd
93. Explain the conditions under which an investor should place more reliance on the yield-to- call than on the yield-to-maturity.
Answer will vary
Feedback: Investors should pay more attention to the YTC rather than the YTM when a bond is likely to be called. This situation exists when a bond is past the call protection period and market interest rates are declining.
Bloom's: Comprehension
Learning Objective: 10-01 How to calculate bond prices and yields. Level of Difficulty: Core
Section: 10.3 Topic: Yield to Call
94. Josh is saving money to purchase a home in 9 years. Explain why Josh should create a coupon bond portfolio with a duration of 9 years, rather than purchasing coupon bonds that mature in 9 years.
Answer will vary
Feedback: Interest rates affect both the price of a bond (price risk) and the rate at which coupon payments can be reinvested (reinvestment risk). These effects are opposing forces and combined are referred to as interest rate sensitivity. Duration measures this sensitivity. By matching the duration of a portfolio to the target date, an investor is shielding the portfolio from interest rate changes. This works because at the point of duration, the price risk offsets the reinvestment risk.
While setting the maturity date to the target date does avoid price risk, it does not address the reinvestment risk.
Bloom's: Comprehension
Learning Objective: 10-03 Interest rate risk and Malkiel's theorems. Level of Difficulty: Intermediate
Section: 10.8 Topic: Immunization
95. Identify and briefly explain four of Malkiel's five theorems. Answer will vary
Feedback: Students should address four of the five theorems which are as follows: 1. Bond prices and bond yields move in opposite directions.
2. For a given change in a bond's yield to maturity, the longer the term to maturity of the bond, the greater will be the magnitude of the change in the bonds' price.
3. For a given change in a bond's yield to maturity, the size of the change in the bond's price increases at a diminishing rate as the bond's term to maturity lengthens.
4. For a given change in a bond's yield to maturity, the absolute magnitude of the resulting change in the bond's price is inversely related to the bond's coupon rate.
5. For a given absolute change in a bond's yield to maturity, the magnitude of the price
increase caused by a decrease in yield is greater than the price decrease caused by an increase in yield.
Bloom's: Comprehension
Learning Objective: 10-04 How to measure the impact of interest rate changes on bond prices. Level of Difficulty: Intermediate
Section: 10.4