Exam 5: Bond Prices and Interest Rate Risk

The realized yield may be influenced by coupon reinvestment rates.

Duration matching eliminates all risk.

A bond with a 9% coupon and a 10% required return will sell at a premium to par.

Price risk is an aspect of bond volatility.

Price risk is of no concern to the investor if the bond is held to maturity.

The higher the coupon rate, the lower the bond price volatility.

Name and discuss the variables that determine the price or value of a fixed-rate coupon bond.

The price of a bond and the market rate of interest are inversely related.

Curation matching eliminates the risk to an investor's real rate of return.

Define and discuss interest rate risk. What are the two risk components of interest rate risk and how do these interact with each other?

What is bond duration and what are the implications of holding a bond to its duration versus holding the bond to maturity?

Name and discuss the factors that must be considered when calculating the realized rate of return on a bond.