Bonds 2

Question 1

Term Structure of interest rates

Answer 1

the relationship between [yield] to maturity and [time] to maturity .

Question 2

Who are using [the term structure interest rates] ?

Answer 2

• Corporate treasures, who must decide whether to issue short or long term debt.
• investor who must decide whether to buy short or long term debt

Question 3

Regarding to TSIR, higher interest rate of bonds lead to increase demand for bonds which lead to ?

Answer 3

decreases the demand for common stock , causing the price of common stock to fall.

Question 4

Interest Rate Risk

Answer 4

is the risk that an [investment security] will [fluctuate in value] due to changes in interest rates.

Question 5

the duration of a bond is the best best measure of interest rate risk . and generally the longer the time until maturity , the greater the degree of interest rate risk . this is why …… [continue]

Answer 5

the interest rate curve usually upward sloping.

Question 6

Other Factors affects the Interest Rate

Answer 6

• inflation expectations, the lower (higher) the expected inflation , the lower (higher) the interest rate

Question 7

ِA primary concern of bond issuer is the amount of will s-he will receive from investors on the day the bonds are sold , this amount is equal to ……….

Answer 7

[the present value of the cash flows] associated with the bonds discounted at the interest rate prevailing in the market at the time [called the market rate or effective rate)