Chapter 7 Review Session

Chapter 7 Review Session - Chapter 7 Review Session 2007...

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© 2007 Robert H. Smith School of Business University of Maryland “Chapter 7 Review Session”
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© 2007 Robert H. Smith School of Business University of Maryland Chapter 7 Review Session 1. Which of the following statements is true? a. Ignoring interest accrued between payment dates, if the required rate of return on a bond is less than its coupon interest rate, and the cost of debt remains below the coupon rate until maturity, then the market value of that bond will be below its par value until the bond matures, at which time its market value will equal its par value. b. Assuming equal coupon rates, a 20 year original maturity bond with one year left to maturity has more interest rate risk than a 10 year original maturity bond with one year left to maturity. c. Regardless of the size of the coupon payment, the price of a bond moves in the same direction as interest rates; bond prices also rise. d. For bonds, price sensitivity to a given change in interest rates generally increases as years remaining to maturity increases. e. Because short-term interest rates are much more volatile than long- term rates, you would, in the real world, be subject to more interest rate risk if you purchased a 30 day bond than if you bought 30 year bond
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© 2007 Robert H. Smith School of Business University of Maryland
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Chapter 7 Review Session - Chapter 7 Review Session 2007...

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