Exam 5: Bond Prices and Interest Rate Risk

If the coupon rate equals the market rate, a bond is likely to be selling at a discount.

Bonds with lower coupon rates have a shorter duration than similar bonds with high coupon rates.

A zero-coupon bond bears no interest.

Yield to maturity assumes reinvestment of coupons at the same yield.

Once bonds are issued, the coupon rate varies inversely with bond prices.

Price risk is one aspect of interest rate risk.

Duration is a measure of interest rate volatility.

A zero coupon bond has no reinvestment risk.

The coupon rate is always the same as the market rate of interest for a bond.

The price risk of a bond tends to offset reinvestment risk somewhat as market interest rates vary.

Ceteris paribus, the holder of a fairly priced premium bond must expect a capital gain over their holding period.

The price of a bond is the present value of future payments discounted at the coupon rate.

The duration of a coupon bond must be shorter than its term to maturity.

A short-term bond's price risk is not as large as a long term bond's price risk.

The duration of a zero coupon bond equals the term to maturity of the bond.

If market interest rates have increased since a bond was purchased the coupon rate will also increase.

The higher the starting interest rate the lower the bond's price sensitivity.

Short-term bonds have greater price risk compared to long-term bonds.

What are the relationships between bond price volatility and bond maturity; coupon rate?

Expected yield is essentially a forecast.