Question

my question is question 18, bond proce movements . thank you so much !

percent and the on this investment 13. Inflation and Nominal Returns [LO4] Suppose the real rate is 1.9 percent an inflation rate is 3.1 percent. What rate would you expect to see on a Treasury bill 14. Nominal and Real Returns [LO4] An investment offers a total return of 115 cent over the coming year. Janice Yellen thinks the total real return on this in will be only 9 percent. What does Janice believe the inflation rate will be ove next year? 15. Nominal versus Real Returns [LO4] Say you own an asset that had a total ret last vear of 11.65 percent. If the inflation rate last year was 3.4 percent, what your real return? 16. Using Treasury Quotes [LO2] Locate the Treasury issue in Figure 7.4 maturing i February 2038. What is its coupon rate? What is its bid price? What was the previous day's asked price? Assume a par value of $10,000. 17. Using Treasury Quotes [LO2) Locate the Treasury bond in Figure 7.4 maturing in August 2039. Is this a premium or a discount bond? What is its current yield? What is its yield to maturity? What is the bid-ask spread in dollars? Assume a par value of $10,000. 18. Bond Price Movements [LO2] Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 8.5 percent, has a YTM of 7 percent, and has 13 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a coupon rate of 7 percent, has a YTM of 8.5 percent, and also has 13 years to maturity. What is the price of each bond today? If interest rates remain unchanged, what do you expect the price of these bonds to be one year from now? In three years? In eight years? In 12 years? In 13 years? What's going on here? Illustrate your answers by graphing bond prices versus time to maturity. 19. Interest Rate Risk (LO2) Both Bond Sam and Bond Dave have 6.5 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 3 years to maturity, whereas Bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam Of Bond Dave? If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Sam be then? Of Bond Dave? Illustrate your answers by graphing bond prices versus YTM. What does this problem tell you abou the interest rate risk of longer-term bonds? 20. Interest Rate Risk (LO2) Bond J has a coupon rate of 3 percent. Bond coupon rate of 9 percent. Both bonds have 19 years to maturity, make seman payments, and have a YTM of 6 percent. If interest rates suddenly rise by 2 per what is the percentage price change of these bonds? What if rates suddenly full 2 percent instead? What does this problem tell you about the interest rates lower-coupon bonds? 21. Bond Yields (LO2] Bourdon Software has 6.4 percent coupon bonds on the with 18 years to maturity. The bonds make semiannual payments and curren for 106.8 percent of par. What is the current yield on the bonds? The Yin effective annual yield? nds on the market currently sel The YTM? Th

Answer 1

I J K K L M N O P Q No. of years left to maturity (5900.00) 13 22 10 5 1 0 ($950.00) ($1,000.00) ($1,050.00) C D E F G H Bond X Now 1 year 3 year 8 year 12 years 13 year Coupon Rate 8.50% 8.50% 8.50% 8.50% 8.50% 8.50% YTM 7% 7% 7% 7% 7% 7% Term 13 12 10 5 1 0 No. of periods in a year 2 2 2 2 2 par value 1000 1000 1000 1000 1000 1000 Present value ($1,126.68) ($1,120.44) ($1,106.59) ($1,062.37) ($1,014.25) ($1,000.00) =PV(C4/2,C5*C6,03*07/C6,07,0) =PVIYTM/2,Term*No. of periods in a year, Coupon rate*Par value/No. of periods in a year,par value,0) Bond Y Now 1 year 3 year 8 year 12 years 13 year Coupon Rate 7% 7% 7% 7% 7% 7% YTM 8.50% 8.50% 8.50% 8.50% 8.50% 8.50% Term 12 10 1 No. of periods in a year 2 2 par value 1000 1000 1000 1000 1000 1000 Present value ($883.33) ($888.52) ($900.29) ($939.92) ($985.90) ($1,000.00) ($1,100.00) ($1,150.00) Present value 13 No. of years left to maturity ($ 800.00) 13 12 10 5 1 0 ($850.00) ($900.00) ($950.00) ($1,000.00) Both the bonds are moving towards towards their par value as they get closer to their maturity date Premium or discount is getting amortized each each and bonds are tending towards their par value ($1,050.00) - Present value