(1) The price of a coupon bond and the yield to maturity are the yield to maturi
ID: 1128650 • Letter: #
Question
(1) The price of a coupon bond and the yield to maturity are the yield to maturitythe pricef related; that is, as of the bond A) negatively, rises; falls B) positively, rises; rises C) negatively, falls; falls D) positively, rises; falls (2) Which of the following are generally TRUE of all bonds? A) A fall in interest rates results in capital losses for bonds whose terms to maturity are longer than the holding period B) The longer a bond's maturity, the greater is the rate of return that occurs as a result of the increase in the interest rate. C) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. D) Prices and returns for short-term bonds are more volatile than those for longer term bonds. (3) If you expect the inflation rate to be 12 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is A) -5 percent B) -2 percent. C) 2 percent D) 12 percentExplanation / Answer
1) option A is correct.
Because when the price of the bond increases its yield to maturity decreases.
2) Option C is correct.
Because intrest rate & return are inversly related.
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