2.7 Interest Rates And Bond Prices Flashcards
1
Q
Market risk or Interest Rate Risk
A
As interest rates rise the prices of bonds decline in the secondary market because investors can invest their money in higher-paying new issues
2
Q
Market risk is higher in long term bonds or short term bonds?
A
Long term bonds
3
Q
Short term bonds typically pay lower or higher yields ?
A
Lowers yields than long term because they are less risky than a long term bond
4
Q
Zero Coupon Bond
A
Has the highest duration among Bonds
Does not pay interest but only the principal at maturity
5
Q
Basis points
A
A basis point equals one hundredth of a percentage point
100 basis points is 1%
6
Q
Bid Price
A
Maximum price a buyer is willing to pay
7
Q
Ask Price
A
The minimum price a seller is willing to except
8
Q
The Spread
A
Represents the dealers profit
