1) Consider a coupon bond. If the bond price is higher than the par value, then the yield exceeds its coupon rate.

True

False

2)  All else equal, the interest rate of a bond and its duration are positively related.

True

False

Answer:

1. True:

If the bond price is higher than the par value, it is called as the premium bond and it takes place when the yield exceeds its coupon rate. In all the other cases, the yield of the bond does not exceed the coupon rate generally.

2. False:

The duration of the bond and the interest rate have an inverse relationship with each other.

Generally, for every 1% change in interest rate a bond price will change approximately 1% in the opposite direction for every year of duration.