Homework Answers
Correct Answer:
B
It is not the correct reason as the coupon payment as mentioned does not remain same and it also changes. It makes one year treasury bill to be more preferred by the investor in the given scenario.
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Suppose the interest rate and therefore the yield to maturity) increases by the same amount on...
1. The term structure of interest rates refers to the relationship between _____. a bond's time to maturity and its coupon rate a bond's age since issue and its coupon rate a bond's age si...
1. The term structure of interest rates refers to the relationship between _____. a bond's time to maturity and its coupon rate a bond's age since issue and its coupon rate a bond's age since issue and its yield a bond's time to maturity and its yield. 2. The yield on 12-month treasury bills is 1.4% and the yield on 2-year treasury STRIPS is 2%. a. What is the implied 1-year forward rate one year from now? 3. The term...
Bond Prices: On Dec. 30th 2019, the interest rate (yield-to-maturity)on a ten-year Treasury bond was 1.827%....
Bond Prices: On Dec. 30th 2019, the interest rate (yield-to-maturity)on a ten-year Treasury bond was 1.827%. If the bond paid a 2% annual coupon for 10 years and had a par value of $1,000, what price would it have sold for on Dec. 30th? On Mar. 5nd 2020, the interest rate (yield-to-maturity) on a ten-year Treasury had dropped to 0.926%. Again, if a bond paid a 2% annual coupon for 10 years and had a par value of $1,000, what...
The real risk-free rate of interest is expected to remain constant at 3% for the foreseeable...
The real risk-free rate of interest is expected to remain constant at 3% for the foreseeable future. However, inflation is expected to increase steadily over the next 30 years, so the Treasury yield curve has an upward slope. Assume that the pure expectations theory holds. You are also considering two corporate bonds, one with a 3-year maturity and one with a 5-year maturity. Both have the same default and liquidity risks. Given these assumptions, which of these statements is CORRECT?...
1. What is the relationship between real interest rate, nominal interest rate and inflation rate? 2....
1. What is the relationship between real interest rate, nominal interest rate and inflation rate? 2. What are the reasons for very high nominal interest rates in the 1980s? 3. Someone buys a 5 year government treasury bond at $P t a. Can the price be above face value? Why? b. Can the price be below face value? Why? c. If he/she wants to sell it after 2 years, will he/she makes a positive rate of return or negative rate...
5. Eleven years from now the bond will have 1 year until maturity. Assume market interest...
5. Eleven years from now the bond will have 1 year until maturity. Assume market interest rates are at 7 percent, the same place they were when the bond was issued. Given this: k. What will be the bond's price 11 years from now? 1. What will be the current yield eleven years from now? m. What is the expected capital gains yield eleven years from now? n. How does you answers to part (1) and (m) compare with your...
. Current yield is 6.2% today on a bond that is just issued with 4 years to maturity, 6.5% coupon rate and S1,000 face...
. Current yield is 6.2% today on a bond that is just issued with 4 years to maturity, 6.5% coupon rate and S1,000 face value a) (10 points) What will be the price of this bond exactly in two years (after it distributes its second coupon) if the market rate doubles? c (15 points) How much capital gains should an investor expect to get in the subsequent year if she buys this bond at that time (in two years, after...
drop down option the same for all questions Which tend to be more volatile, short- or...
drop down option the same for all questions
Which tend to be more volatile, short- or long-term interest rates? Long-term interest rates Short-term interest rates If the inflation rate was 2.60% and the nominal interest rate was 6.00% over the last year, what was the real rate of interest over the last year? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. O 3.40% 3.91% 2.89% 4.25% Component Symbol Characteristic This is the rate for a...
4. A bond trader purchased each of the following bonds at a yield to maturity of...
4. A bond trader purchased each of the following bonds at a yield to maturity of 11%. Immediately after she purchased the bonds, interest rates fell to 9%. What is the percentage change in the price of each bond after the decline in interest rates? Fill in the following table: Price @ 11%Price @ 9%Percentage Change 10-year, 10% annual coupon 10-year zero 5-year zero 30-year zero Perpetuity, $100 annual coupon 5. An investor has two bonds in his portfolio. Each...
37. Consider a five-year bond with a 10% coupon that has a present yield to maturity...
37. Consider a five-year bond with a 10% coupon that has a present yield to maturity of 8%. If interest rates remain constant, one year from now the price of this bond will be: a) Par b) Higher c) Lower d) The same e) None of the above 38. ABC issued in 2018 a fifteen-year bond with coupon interest rate 4% and €1,000 face value. Today this bond is sold at €900. Which is the bond’s current yield? a) 0.062...
2. Bond prices and interest rates Aa Aa The remarkable thing about the events described in the ar...
2. Bond prices and interest rates Aa Aa The remarkable thing about the events described in the article is that the yield on the 3-month T-bill was briefly negative. To see how this could happen, you need an understanding of the relationship between bond prices and bond yields A 3-month T-bill with a maturity value of $1,000 is just a piece of paper that entitles the holder to $1,000 in three months. For example, if you were to buy a...
5. Eleven years from now the bond will have 1 year until maturity. Assume market interest rates are at 7 percent, the same place they were when the bond was issued. Given this: k. What will be the bond's price 11 years from now? 1. What will be the current yield eleven years from now? m. What is the expected capital gains yield eleven years from now? n. How does you answers to part (1) and (m) compare with your...
. Current yield is 6.2% today on a bond that is just issued with 4 years to maturity, 6.5% coupon rate and S1,000 face value a) (10 points) What will be the price of this bond exactly in two years (after it distributes its second coupon) if the market rate doubles? c (15 points) How much capital gains should an investor expect to get in the subsequent year if she buys this bond at that time (in two years, after...
drop down option the same for all questions
Which tend to be more volatile, short- or long-term interest rates? Long-term interest rates Short-term interest rates If the inflation rate was 2.60% and the nominal interest rate was 6.00% over the last year, what was the real rate of interest over the last year? Disregard cross-product terms; that is, if averaging is required, use the arithmetic average. O 3.40% 3.91% 2.89% 4.25% Component Symbol Characteristic This is the rate for a...
2. Bond prices and interest rates Aa Aa The remarkable thing about the events described in the article is that the yield on the 3-month T-bill was briefly negative. To see how this could happen, you need an understanding of the relationship between bond prices and bond yields A 3-month T-bill with a maturity value of $1,000 is just a piece of paper that entitles the holder to $1,000 in three months. For example, if you were to buy a...
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