《《Investment 8th Chap014》.docVIP

CHAPTER 14: BOND PRICES AND YIELDS PROBLEM SETS 1. The bond callable at 105 should sell at a lower price because the call provision is more valuable to the firm. Therefore, its yield to maturity should be higher. 2. Zero coupon bonds provide no coupons to be reinvested. Therefore, the investors proceeds from the bond are independent of the rate at which coupons could be reinvested (if they were paid). There is no reinvestment rate uncertainty with zeros. 3. A bond’s coupon interest payments and principal repayment are not affected by changes in market rates. Consequently, if market rates inc