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Why do bond prices go down when interest rates go up

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Reference no: EM13262098

1. Define the following types of bonds:

a. Catastrophe bond.

b. Eurobond.

c. Zero-coupon bond.

d. Samurai bond.

e. Junk bond

f. Convertible bond.

g. Serial bond.

h. Equipment obligation bond.

i. Original issue discount bond.

j. Indexed bond.

k. Callable bond.

l. Puttable bond.

2. Two bonds have identical times to maturity and coupon rates. One is callable at 105, the other at 110. Which should have the higher yield to maturity? Why?

3. The stated yield to maturity and realized compound yield to maturity of a (default-free) zero coupon bond will always be equal. Why?

4. Why do bond prices go down when interest rates go up? Don't lenders like high interest rates?

5. A bond with an annual coupon rate of 4.8% sells for $970. What is the bond's current yield?

6. Which security has a higher effective annual interest rate?

a. A 3-month T-bill selling at $97,645 with par value $100,000.

b. A coupon bond selling at par and paying a 10% coupon semiannually.

7. Treasury bonds paying an 8% coupon rate with semiannual payments currently sell at par value What coupon rate would they have to pay in order to sell at par if they paid their coupons anually? (Hint: What is the effictive annual yield on the bond?)

8. Consider a bond with a 10% coupon and with yield to maturity = 8%. If the bond's yield to maturity remains constant, then in 1 year, will the bond price be higher, lower, or unchanga Why?

Attachment:- Questions and Problems.pdf

Reference no: EM13262098

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