Homework Answers
1.
True as elasticity increases with decrease in coupon
2.
False it decreases the price
3.
True as bond price is inversely proportional to yield
4.
True
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7. A low coupon bond will have more price elasticity i.e., more sensitive to interest rate...
The prices of low-coupon bonds tend to be less sensitive to a given change in interest...
The prices of low-coupon bonds tend to be less sensitive to a given change in interest rates than high coupon bonds, other things held constant. O O True False There is an inverse relationship between bonds' quality ratings and their required rates of return. Thus, the required return is lowest for AAA-rated bonds, and required returns increase as the bond ratings get lower. O True or False What's TRUE regarding long-term and short-term bonds (assume they have the same par...
6. Please calculate the value (Price) of the following corporate bond with a coupon rate of...
6. Please calculate the value (Price) of the following corporate bond with a coupon rate of 7% (annual), and a face value of $1000.00. The maturity of the bond is 15 years. The market interest rate of similar bonds (Yield to maturity) is 6%. the bond value now? Why? Suppose the market interest rate increases to 9%, what will happen to
A. Explain the graph below using risk structure theory of interest rate. Corporate Bond Yields Typically...
A. Explain the graph below using risk structure theory of interest rate. Corporate Bond Yields Typically Rise During Times of Economic Stress Compared to U.S. Treasury Bonds (Risk Free) Difference in Percentage Points (Corporate Bond Yield less U.S. Treasury Bond Yield) Low-Grade Corporate Bond Risk Premium homwa Russian Ruble Crisis (1998) gh-Grade Corporate Bond Risk Premium 2001 Recession Apr-95 Apr-96 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Source: Moody's, Merrill Lynch, Federal Reserve Board
Bond valuation Years to maturity Par value of bond Coupon rate Frequency interest paid per year...
Bond valuation Years to maturity Par value of bond Coupon rate Frequency interest paid per year Effective annual rate 25 $1,000.00 9.00% 10.04% Calculation of periodic rate: Nominal annual rate Periodic rate Formulas #N/A #N/A 1 Formulas #N/A 0.00% 3 Calculation of bond price: 4 Number of periods 15 Interest rate per period 16 Coupon payment per period 17 Par value of bond 18 Price of bond #N/A $1,000.00 #N/A Video Excel Online Structured Activity: Bond valuation You are considering...
3.2% 2.5% 0/1 pt Question 32 Assume that the current interest rate on a one-year bond...
3.2% 2.5% 0/1 pt Question 32 Assume that the current interest rate on a one-year bond is 8 percent, the current rate on a two-year bond is 10 percent, and the current rate on a three-year bond is 12 percent. If the expectations theory of the term structure is correct, what is the one-year interest rate expected during Year 3? (Base your answer on an arithmetic average rather than a geometri average.) 12% 16% 13% Incorrect. The yield on any...
3. You have a zero coupon bond that pays $100 in two more years. Its price...
3. You have a zero coupon bond that pays $100 in two more years. Its price is $69.44. You also have a 5% coupon bond with a principal of $100. The spot rate for 1 year is 5%. (a) What is the spot rate for 2 years, ra? (b) What is the price of the coupon bond? (c) Make a graph to show the term structure of interest rates.
BA Corp is issuing a 10-year bond with a coupon rate of 7.17 percent. The interest...
BA Corp is issuing a 10-year bond with a coupon rate of 7.17 percent. The interest rate for similar bonds is currently 7.22 percent. Assuming annual payments, what is the value of the bond? (Round answer to 2 decimal places, e.g. 15.25.) Pierre Dupont just received a cash gift from his grandfather. He plans to invest in a five-year bond issued by Venice Corp. that pays an annual coupon of 5.55 percent. If the current market rate is 8.24 percent,...
11.2 Twin Oaks Health Center has a bond issue outstanding with a coupon rate of 7...
11.2 Twin Oaks Health Center has a bond issue outstanding with a coupon rate of 7 percent and four years remaining until maturit The par value of the bond is $1,000, and the bond pays interest annually. a. Determine the current value of the bond if present market conditions justify a 14 percent required rate of return. b. Now, suppose Twin Oaks's four-year bond had semiannual coupon payments. What would be its current value? (Assume a 7 percent semiannual required...
The choices for the blanks, in order, are: fall/rise narrowing/widening higher/lower low/high rise/fall decreasing/increasing Corporate-Bond Issuers...
The choices for the blanks, in
order, are:
fall/rise
narrowing/widening
higher/lower
low/high
rise/fall
decreasing/increasing
Corporate-Bond Issuers Race to the Market as U.S. Yields Approach Record Low On April 25, 2011, the Fed announced that short-term interest rates would be kept near zero through late 2014. Because corporate bonds are indexed to Treasury yields and the Treasury yield hit nearly all-time lows, issuing conditions became conducive for investment-grade borrowers. Europe's debt crisis fueled the demand for relatively safer U.S. securities, and...
Questions 1 to 10 are false statements. Please re-write each statement so that it is true....
Questions 1 to 10 are false statements. Please re-write each statement so that it is true. It may be as simple as one word change or more complex. 3. Money market security prices and yields are more sensitive to changes in interest rates than long-term corporate bonds. 4. The majority of money market securities are low denomination, low risk investments designed to appeal to individual investors with excess cash. 5. Most money market securities are initially sold to individual investors....
The prices of low-coupon bonds tend to be less sensitive to a given change in interest rates than high coupon bonds, other things held constant. O O True False There is an inverse relationship between bonds' quality ratings and their required rates of return. Thus, the required return is lowest for AAA-rated bonds, and required returns increase as the bond ratings get lower. O True or False What's TRUE regarding long-term and short-term bonds (assume they have the same par...
6. Please calculate the value (Price) of the following corporate bond with a coupon rate of 7% (annual), and a face value of $1000.00. The maturity of the bond is 15 years. The market interest rate of similar bonds (Yield to maturity) is 6%. the bond value now? Why? Suppose the market interest rate increases to 9%, what will happen to
A. Explain the graph below using risk structure theory of interest rate. Corporate Bond Yields Typically Rise During Times of Economic Stress Compared to U.S. Treasury Bonds (Risk Free) Difference in Percentage Points (Corporate Bond Yield less U.S. Treasury Bond Yield) Low-Grade Corporate Bond Risk Premium homwa Russian Ruble Crisis (1998) gh-Grade Corporate Bond Risk Premium 2001 Recession Apr-95 Apr-96 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Source: Moody's, Merrill Lynch, Federal Reserve Board
Bond valuation Years to maturity Par value of bond Coupon rate Frequency interest paid per year Effective annual rate 25 $1,000.00 9.00% 10.04% Calculation of periodic rate: Nominal annual rate Periodic rate Formulas #N/A #N/A 1 Formulas #N/A 0.00% 3 Calculation of bond price: 4 Number of periods 15 Interest rate per period 16 Coupon payment per period 17 Par value of bond 18 Price of bond #N/A $1,000.00 #N/A Video Excel Online Structured Activity: Bond valuation You are considering...
3.2% 2.5% 0/1 pt Question 32 Assume that the current interest rate on a one-year bond is 8 percent, the current rate on a two-year bond is 10 percent, and the current rate on a three-year bond is 12 percent. If the expectations theory of the term structure is correct, what is the one-year interest rate expected during Year 3? (Base your answer on an arithmetic average rather than a geometri average.) 12% 16% 13% Incorrect. The yield on any...
3. You have a zero coupon bond that pays $100 in two more years. Its price is $69.44. You also have a 5% coupon bond with a principal of $100. The spot rate for 1 year is 5%. (a) What is the spot rate for 2 years, ra? (b) What is the price of the coupon bond? (c) Make a graph to show the term structure of interest rates.
11.2 Twin Oaks Health Center has a bond issue outstanding with a coupon rate of 7 percent and four years remaining until maturit The par value of the bond is $1,000, and the bond pays interest annually. a. Determine the current value of the bond if present market conditions justify a 14 percent required rate of return. b. Now, suppose Twin Oaks's four-year bond had semiannual coupon payments. What would be its current value? (Assume a 7 percent semiannual required...
The choices for the blanks, in
order, are:
fall/rise
narrowing/widening
higher/lower
low/high
rise/fall
decreasing/increasing
Corporate-Bond Issuers Race to the Market as U.S. Yields Approach Record Low On April 25, 2011, the Fed announced that short-term interest rates would be kept near zero through late 2014. Because corporate bonds are indexed to Treasury yields and the Treasury yield hit nearly all-time lows, issuing conditions became conducive for investment-grade borrowers. Europe's debt crisis fueled the demand for relatively safer U.S. securities, and...
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