Homework Answers
Longer time to maturity – increase interest rate sensitivity
A higher coupon rate – decrease interest rate sensitivity
A higher initial yield to maturity – no effect
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1. Indicate whether the following characteristics would increase (1), decrease (d), or have no effect (NE)...
The following are correct descriptions about general characteristics of Bonds, EXCEPT: Question 3 options: Bonds in...
The following are correct descriptions about general characteristics of Bonds, EXCEPT: Question 3 options: Bonds in general generate a fixed coupon payment every period, until maturity expires. A bond that offers a fixed coupon payment in perpetuity is called a console. If the market interest rate increases, then the current price for bonds will increase. If the current price of a bond increases, its yield to maturity (YTM) will decrease.
For each of the following transactions, indicate whether it will result in an increase, decrease, or...
For each of the following transactions, indicate whether it will result in an increase, decrease, or have no effect on cash flows: (a)Decrease Repayment of mortgage payable (b)Decrease Payment of interest on mortgage Purchase of land in exchange for common shares (d) Increase Issue of preferred shares for cash (e) No Effect Payment for the purchase of a held for trading investment that is not a cash equivalent (0) Increase Collection of accounts receivable (9)No Effect Declaration of cash dividend...
Problem 13-03 The Clarence Corporation has issued bonds that pay semiannually with the following characteristics: Coupon...
Problem 13-03 The Clarence Corporation has issued bonds that pay semiannually with the following characteristics: Coupon Yield to Maturity Maturity Macaulay Duration 10% 10% 13 7.55 years a. Calculate modified duration using the information provided. Do not round intermediate calculations. Round your answer to two decimal places. Use only the data provided in the table above (in the problem statement) for your calculations. years b. What is a better measure when calculating the bond's sensitivity to changes in interest rates?...
For each of the following, indicate whether the item would increase pension expense for the current...
For each of the following, indicate whether the item would increase pension expense for the current year, decrease pension expen current year, or have no effect on pension expense for the current year. Assume a defined benefit pension plan, and that ASPE is fo (a) The discount rate is applied to plan assets. (b) Past service costs granted during the year. (c) Benefits paid to retired employees. (d) Current statistics used by the actuary indicate more employees are retiring at...
Indicate whether a debit will increase (l) or decrease (D) each of the following accounts listed...
Indicate whether a debit will increase (l) or decrease (D) each of the following accounts listed in items 1 through 15. Increase (1) or Decrease (D) Account Inventory Depreciation expense Accounts payable Prepaid rent Sales revenue Common stock Salaries payable Cost of goods sold Utilities expense Equipment Accounts receivable Utilities payable Rent expense Interest expense Interest revenue
when the coupon the All else constant, a bond will sell at yield to maturity a...
when the coupon the All else constant, a bond will sell at yield to maturity a premium; less than a premium; equal to a discount; less than D. a discount; higher than par; less than с. 4 The Walthers Company has a semi-annual coupon bond outstanding tanding. An increase in the market rate of interest will have which of the following effects which of the following effects on the bond? increase the coupon rate decrease the coupon rate increase the...
Bonds and their valuation
Consider the following case of investment-grade bonds issued by Procter & Gamble Co. (P&G) in August 2011.Proctor & Gamble (NYSE: PG) | Issue DetailsIssue Size ($Mil.)Maturity DateCallable$1,00008/15/2014YesCouponCoupon TypeCoupon Frequency0.700%FixedSemi-annuallyProctor and Gamble’s total amount of debt increased from 31.9% in March 2011 to 34.2% in December 2011, mainly due to its net debt issuances to fund general corporate purposes.What was the annual cost of the funds raised from the $1.0 billion bonds that mature in 2014 to P&G?basis points.If the bond sold at...
It would be greatly appreciated if you can help to do the followings. Thanks! 1. 2....
It would be greatly appreciated if you can help to do the
followings. Thanks!
1.
2.
3.
4.
5.
Suppose that the liquidity effect is immediate and smaller than the other effects, and our expectations of inflation adjust quickly. Referring to the graphs on the right, choose the time path of interest rates from an increase in the growth rate of the money supply that occurs at time T." O A. GraphB O B. Graph A Interest Rate When the...
9) Taussig Corp's bonds currently sell for $1.150. They have a 6.75% annual coupon rate 15-year...
9) Taussig Corp's bonds currently sell for $1.150. They have a 6.75% annual coupon rate 15-year maturity, they have been called in 6 years at $1.067.50. Under these conditions, whe rate of return should an investor expect to earn. Original par value is $1000. 10) Consider a coupon bond that sold at par value two years ago. If interest rates are much lower now than when this bond was issued, the coupon rate of that bond will likely be the...
Why would the prices of bond issues increase when interest rate is rising? You are purchasing...
Why would the prices of bond issues increase when interest rate is rising? You are purchasing bond issues at the prevailing interest rate which would be the coupon rate? Why would it be necessary to reduce the bond price volatility when you can purchase new bonds at a higher coupon rate?
For each of the following transactions, indicate whether it will result in an increase, decrease, or have no effect on cash flows: (a)Decrease Repayment of mortgage payable (b)Decrease Payment of interest on mortgage Purchase of land in exchange for common shares (d) Increase Issue of preferred shares for cash (e) No Effect Payment for the purchase of a held for trading investment that is not a cash equivalent (0) Increase Collection of accounts receivable (9)No Effect Declaration of cash dividend...
Problem 13-03 The Clarence Corporation has issued bonds that pay semiannually with the following characteristics: Coupon Yield to Maturity Maturity Macaulay Duration 10% 10% 13 7.55 years a. Calculate modified duration using the information provided. Do not round intermediate calculations. Round your answer to two decimal places. Use only the data provided in the table above (in the problem statement) for your calculations. years b. What is a better measure when calculating the bond's sensitivity to changes in interest rates?...
For each of the following, indicate whether the item would increase pension expense for the current year, decrease pension expen current year, or have no effect on pension expense for the current year. Assume a defined benefit pension plan, and that ASPE is fo (a) The discount rate is applied to plan assets. (b) Past service costs granted during the year. (c) Benefits paid to retired employees. (d) Current statistics used by the actuary indicate more employees are retiring at...
Indicate whether a debit will increase (l) or decrease (D) each of the following accounts listed in items 1 through 15. Increase (1) or Decrease (D) Account Inventory Depreciation expense Accounts payable Prepaid rent Sales revenue Common stock Salaries payable Cost of goods sold Utilities expense Equipment Accounts receivable Utilities payable Rent expense Interest expense Interest revenue
when the coupon the All else constant, a bond will sell at yield to maturity a premium; less than a premium; equal to a discount; less than D. a discount; higher than par; less than с. 4 The Walthers Company has a semi-annual coupon bond outstanding tanding. An increase in the market rate of interest will have which of the following effects which of the following effects on the bond? increase the coupon rate decrease the coupon rate increase the...
Consider the following case of investment-grade bonds issued by Procter & Gamble Co. (P&G) in August 2011.Proctor & Gamble (NYSE: PG) | Issue DetailsIssue Size ($Mil.)Maturity DateCallable$1,00008/15/2014YesCouponCoupon TypeCoupon Frequency0.700%FixedSemi-annuallyProctor and Gamble’s total amount of debt increased from 31.9% in March 2011 to 34.2% in December 2011, mainly due to its net debt issuances to fund general corporate purposes.What was the annual cost of the funds raised from the $1.0 billion bonds that mature in 2014 to P&G?basis points.If the bond sold at...
It would be greatly appreciated if you can help to do the
followings. Thanks!
1.
2.
3.
4.
5.
Suppose that the liquidity effect is immediate and smaller than the other effects, and our expectations of inflation adjust quickly. Referring to the graphs on the right, choose the time path of interest rates from an increase in the growth rate of the money supply that occurs at time T." O A. GraphB O B. Graph A Interest Rate When the...
9) Taussig Corp's bonds currently sell for $1.150. They have a 6.75% annual coupon rate 15-year maturity, they have been called in 6 years at $1.067.50. Under these conditions, whe rate of return should an investor expect to earn. Original par value is $1000. 10) Consider a coupon bond that sold at par value two years ago. If interest rates are much lower now than when this bond was issued, the coupon rate of that bond will likely be the...
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