You would expect a bond of an Eastern European government to pay interest rate as compared to a bond of the U.S. government.
You would expect a bond that repays the principal in year 2040 to pay interest rate as compared to a bond that repays the principal in year 2020.
You would expect a bond from a software company you run in your garage and a bond from Coca-Cola to pay different interest rates because of differences in the bonds' .
You would expect a bond issued by New York State to pay interest rate as compared to a bond issued by the federal government.
There are many different bonds in the world economy, and these bonds differ according to three characteristics:
Term to maturity: | Long-term bonds are riskier than short-term bonds because holders of long-term bonds have to wait longer for repayment of principal. To compensate for this risk, long-term bonds usually pay higher interest rates than short-term bonds. |
Credit risk: | When bond buyers perceive that the probability of default is high, they demand a higher interest rate as compensation for this risk. |
Tax treatment: | When state and local governments issue bonds, the bond owners are not required to pay federal income tax on the interest income. Because of this tax advantage, bonds issued by state and local governments typically pay a lower interest rate than bonds issued by corporations or the federal government. |
Given these characteristics, the bond of an Eastern European government would pay a higher interest rate than the bond of the U.S. government because there would be a greater risk of default. A bond that repays the principal in 2040 would pay a higher interest rate than a bond that repays the principal in 2020 because it has a longer term to maturity. A bond of a software company you run in your garage would pay a higher interest rate than a bond issued by Coca-Cola because your software company has greater credit risk. And a bond issued by the federal government would pay a higher interest rate than a bond issued by New York State because an investor does not have to pay federal income tax on the bond from New York State. See Section: Financial Markets.
You would expect a bond of an Eastern European government to pay interest rate as compared...
Options are: 1. a lower/a higher/same 2. credit risks/tax treatments/terms to maturity 3. credit risks/tax treatments/terms to maturity 4. credit risks/tax treatments/terms to maturity You would expect a bond of the U.S. government to pay interest rate as compared to a bond of an Eastern European government. You would expect a bond that repays the principal in year 2040 and a bond that repays the principal in year 2020 to pay different interest rates because of differences in the bonds'...
The options for a are "the same", "a higher", or "a lower" The options for b are "the same", "a higher", or "a lower" The options for c are "terms to maturity", "credit risks", or "tax treatment" The options for d are "the same", "a higher", or "a lower You would expect a bond of an Eastern European government to pay the same interest rate as compared to a bond of the U.S. government interest rate as compared to a...
WHY would I expect a US government agency bond (like Federal Home Loan Banks or Tennessee Valley Authority) to carry a higher rate of return than I would a U.S. Treasury Bond of the same maturity?
3. The current interest rate on a one-year bond is 9%, and you expect the interest rate on the one-year bond next year to be 11%. What is the expected return over the two years?
You are considering a 20-year federal government bond with face value $10,000 and a coupon rate of 4%. If you want the yield to maturity of the bond to be 7%, how much should you pay (in $) to purchase the bond?
A high-yield bond has the following features: __________________________________________________ Principal amount: $1,000 Interest rate (the coupon): 11.50% Maturity: 10 years Sinking fund: None Call feature: After two years Call penalty: One year’s interest ___________________________________________________ a.) If comparable yields are 12 percent, what should be the price of this bond? b.) Would you expect the firm to call the bond if yields are 12 percent? c.) If comparable yields are 8 percent, what should be the price of the bond? d.) Would...
How much would an investor expect to pay for a $1,000 par value bond with a 9% semi-annual coupon that matures in 5 years if the interest rate is 7%? 3 pts $696.74 $1,083.17 $1,082.00 $1,123.01
Perpetuities. The Canadian Government has once again decided to issue a consol (a bond with a never-ending interest payment and no maturity date). The bond will pay $70 in interest each year (at the end of the year), but it will never return the principal. A) If the current discount rate for Canadian government bonds is 10%, what should this bond sell for in the market? B) If the current discount rate for Canadian government bands would rise to 11%?...
d) Assume that interest rate parity exists. You expect that the one-year nominal interest rate in the U.S. is 1.995%, while the one-year nominal interest rate in Australia is 3.695%. The spot rate of the Australian dollar is USD0.6939. You will need 15 million Australian Dollars in one year. Today, you purchase a one-year forward contract in Australian Dollars. Estimate how many U.S. Dollars (USD) will you need in one year to fulfill your forward contract.
II. Consider two bonds, one issued in euros () in Germany, and one issued in dollars (S) in the United States. Assume that both government securities are one-year bonds-paying the face value of the bond one year from now. The exchange rate, E, stands at 0.75 euros per dollar. The face values and prices on the two bonds are given by Face Value $10,000 10,000 Pric S9,615.38 9,433.96 United States Germany a. Compute the nominal interest rate on each of...