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Short-term bond prices

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9-3 The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates are more volatile than long-term interest rates. Therefore, short-term bond prices are more sensitive to interest rate changes than are long-term bond prices." Is this statement true or false? Explain.

9-4 The rate of return you would get it bought a bond and held it to its maturity date is called the bond's yield to maturity. If interest rates in the economy rise after a bond has been issued, what will happen to the bond's price and its YTM? Does the length of time to maturity affect the extent to which a given change in interest rates will affect the bond's price?

9-5 If you buy a callable bond and interest rates decline, will the value of your bond rise by as much as it would have risen if the bond had not been callable? Explain.

9-6 Indicate whether each of the following actions will increase or decrease a bond's yield to maturity:
a. A bond's price increases.
b. The company's bonds are downgraded by the rating agencies.
c. A change in the bankruptcy code makes it more difficult for bondholders to receive payments in the event a firm declares bankruptcy.
d. The economy enters a recession.
e. The bonds become subordinated to another debt issue.

Pages 410

10-2 The investors are evaluating AT & T's stock for possible purchase. They agree on the expected value of D1 and also on the expected future dividend growth rate. Further, they agree on the riskiness of the stock. However, one investor normally holds stocks for 2 years, while the other normally holds stocks for 10 years. On the basis of the type of analysis done in this chapter, they should both be willing to pay the same price for AT & T's stock. True or False? Explain.
10-4 If you bought a share of common stock, you would typically expect to receive dividends plus capital gains. Would you expect the distribution between dividend yield and capital gains to be influenced by the firm's decision to pay more dividends rather than to retain and reinvest more of it's earning?

Mini Case Page 415

a. Describe briefly the legal and privileges of common stockholders.
b. 1. Write out a formula that can be used to value any stock, regardless of its dividend pattern.
2. What is a constant growth stock? How are constant growth stocks valued?
3. What happens if a company has a constant g, which exceeds its ks? Will many stocks have expected g > ks in the short run (i.e. for the next few years)? In the long run (i.e., forever)?

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Module # 3
9-3 The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates are more volatile than long-term interest rates. Therefore, short-term bond prices are more sensitive to interest rate changes than are long-term bond prices." Is this statement true or false? Explain.
This is true because in short run the demand patterns of liquid funds in money market is more volatile and difficult to predict a pattern and the long run patterns can be predicted more accurately. Consequently short term bond prices are more sensitive to interest rates changes than long term bonds.

9-4The rate of return you would get it bought a bond and held it to its maturity date is called the bond's yield to maturity. If interest rates in the economy rise after a bond has been issued, what will happen to the bond's price and its YTM? Does the length of time to maturity affect the extent to which a given change in interest rates will affect the bond's price?

The bond prices rate will fall, similarly yield to maturity will fall. Yes length of time to maturity will affect the extent to which a given change in interest rates will affect the bond's price, the greater the length more the affect. For example incase of 10-year bond, one would get just $ 100 even if ...

Solution Summary

Seven finance problems are solved and discussed. Topics vary from bond pricing to equity. Response is 945 words (about three pages) and includes formulas.

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