Purchase Solution

Interest rate and value of bonds/riskless portfolio

Not what you're looking for?

Ask Custom Question

A) The values of outstanding bonds change whenever the going rate of interest changes. Generally speaking, short-term interest rates are much more volatile than long-term interest rates. With that, short-term bond prices are more sensitive to interest rate changes than are long-term bond prices.

Is this true or false? Explain in your own words without references and with detail (150 words).

B) What if you owned a portfolio consisting of $250,000 worth of long-term U. S. government bonds.

Would your portfolio be considered risk-less?

What if you hold a portfolio consisting of $250,000 worth of 30-day Treasury bills. Every 30 days your bills mature and you reinvest the principal ($250,000) in a new batch of bills. Presume that you live on the investment income from your portfolio and that you want to maintain a consistent standard of living. Is your portfolio truly risk-less?

Can you think of any asset that would be completely risk-less? Could someone create such an asset? Explain in your own words without references and with detail (150 words).

Purchase this Solution
Solution Summary

The solution explains the relationship between interest rates and value of bonds and how to get a riskless portfolio

Purchase this Solution
Free BrainMass Quizzes
Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

View More Free Quizzes
Related BrainMass Solutions

  • Portoflio and Risk

    160898 Portoflio and Risk Suppose you owned a portfolio consisting of $250,000 worth of long-term U.S. government bonds. a. Would your portfolio be riskless? b.

  • Finance questions 1. What are coupon payments, and what is

    Bonds tend to increase in value when interest rate goes down, and decrease in value when interest rate goes up. When interest rate goes up, new bond issued to the market will offer higher yield that the old ones.

  • 10 Finance Questions

    If the required rate of return on similar bonds of equal risk is 5 percent, the bond will sell at which of the following? a. A premium b. A discount c. At par value d. At $500 ($100 annual interest payments x 5 years to maturity) e.

  • Riskless Assets for Treasury Bonds

    This is because with increase in maturity the risk of interest rate to go up increases. B) No it's not risky. Here the investment is done on a short term (90 days) treasury bill and this is almost risk less.

  • Required Rate of Return, Expected Return, Discrete Distribution

    #6-4 Suppose you owned a portfolio consisting of $250,000 of government bonds with a maturity of 30 years. a. Would your portfolio be riskless? Yes, my portfolio would be riskless.

  • 19 Questions on Derivatives

    The current one-year riskless rate in the U.S. is .05 and the current one-year riskless rate in Canada is .04. The spot rate shows that a Canadian dollar is 0.846 US$.

  • Projects Firm Undertake

    The bonds have a 10% annual coupon, $1,000 face value, $1,050 market value, and 10-year maturity. The beta on the stock is 1.30 and its price per share is $40.

  • Value of European Call Option using Binomial Tree

    Assuming the riskless interest rate over the next 90 days is .01, can you value a European call option written on a share of DGM stock if the option carries an exercise price of $85.00? Please see attached file.

  • Canadian Bonds and Japanese Bonds Analysis

    40255 Foreign Exchange Consider a 1-year riskless Canadian bond and a 1-year riskless Japanese bonds. The interest rates on the Canadian bond and the Japanese bond are denoted by iCADt and iYent, respectively.

View More Related Solutions