A one-year discount bond issued by X has a payout of $550 and today\'s price is

Question

A one-year discount bond issued by X has a payout of $550 and today's price is $510. A one-year discount bond issued by Y has a payout of $2,290 and today's price is $2,155. Then the bond issued by X has a ____ yield than the bond issued by Y, and this could be because Y has a ____ default risk.

Flag this Question

Question 21 pts

Suppose there is a large decrease in the liquidity of U.S. Treasury bonds, relative to corporate bonds. In this case, the demand curve for U.S. T bonds will shift to the ____ and the ____ curve for Corporate bonds will shift to the right.  

Flag this Question

Question 31 pts

Suppose that the default risk of corporate bonds increases due to a downturn in the economy.  As a result, we would expect the equilibrium price on the corporate bonds to ____ and the yield on the corporate bonds to ____ .

Explanation / Answer

1. A one-year discount bond issued by X has a payout of $550 and today's price is $510. A one-year discount bond issued by Y has a payout of $2,290 and today's price is $2,155. Then the bond issued by X has a higher yield than the bond issued by Y, and this could be because Y has a lower default risk. So the correct option is A.

2. Suppose there is a large decrease in the liquidity of U.S. Treasury bonds, relative to corporate bonds. In this case, the demand curve for U.S. T bonds will shift to the left and the demand curve for corporate bonds will shift to the right.  So the correct option is A.

3. Suppose that the default risk of corporate bonds increases due to a downturn in the economy.  As a result, we would expect the equilibrium price on the corporate bonds to decrease and the yield on the corporate bonds to increase. So the correct option is B.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.