3. Suppose today’s interest rate environment is very low (it is) and you believe that the...
3. Suppose today’s interest rate environment is very low (it is) and you believe that the only direction for interest rates to go is up. Which would be the best type of bond to invest in and why? a: a 20-year zero
b: a 10-year 8% coupon paying bond
c: a 90-day treasury note or bill
d: a floating rate bond which has a coupon of the BBSW rate + 1%
Homework Answers
Option d is correct because in case of rising interest rate scenario floating rate of BBSW+1% will continuously give you the highest interest rate among all the other bonds.
A 20 year zero coupon bond or 10 year-8% coupon paying bond have fixed interest rate and hence you will not get less interest income than a floating rate bond eventually. Also, the 90 day treasury bill will have less interest income because you once bought you can not get higher interest until 90 days. Hence, floating rate bond is better.
Add Answer to:
3. Suppose today’s interest rate environment is very low (it is)
and you believe that the...
According to the Static Tradeoff Theory, how should today’s low interest rate environment (10-year Treasury Bond...
According to the Static Tradeoff Theory, how should today’s low interest rate environment (10-year Treasury Bond Rates are less than 1%/year) impact corporations’ optimal D/A ratios? Explain!
Suppose the interest rate and therefore the yield to maturity) increases by the same amount on...
Suppose the interest rate and therefore the yield to maturity) increases by the same amount on Treasury bills and bonds. Between a one-year Treasury bill, and a twenty-year Treasury bond, an investor would prefer a one-year Treasury bill The following are reasons why the yield to maturity can be less than than the return of a bond except that O A. the time to maturity and the holding period are not the same OB. the coupon payment over the purchase...
If your investment horizon is 10 months, the appropriate risk-free rate you would pick would be...
If your investment horizon is 10 months, the appropriate risk-free rate you would pick would be One-year treasury bill Ten-year AAA rated corporate bond Ten-year zero-coupon treasury bond Ten-year coupon paying treasury bond Ten-year tax-free municipal bond
A funds manager forecasts that it will need to invest $1 million in approximately 90 days. The manager wishes to receive a return as close as possible to the medium-term interest rates currently avail...
A funds manager forecasts that it will need to invest $1 million in approximately 90 days. The manager wishes to receive a return as close as possible to the medium-term interest rates currently available, but expects that rates will have fallen by the time the funds are available for investment. (a) Outline what the manager would do today in the financial futures market in order to secure a return that is close to current medium-term market rates. (b) Calculate the...
Shortly after its recent bankruptcy, a new store of Macys (to be known as Macy Ways)...
Shortly after its recent bankruptcy, a new store of Macys (to be known as Macy Ways) is being formed. You have the opportunity to invest in “Macy Ways”. If you invest $200 today, you will receive a zero-coupon bond that will pay $1,000 (face value or principal) at the end of 20 years. To be adequately compensated for the risk of this bond, you know that you should expect a spread (relative to comparable Treasury securities of at least 765...
new home and you have six so fixed-rate loans are now very Suppose. Shampa just signed...
new home and you have six so fixed-rate loans are now very Suppose. Shampa just signed a purchase and sale agreement on a weeks to obtain a mortgage. Interest rates have been falling attractive. Shampa could lock in a fixed rate of 7% ( annual percentage rate) for 30 years. On the other hand, rates are falling, so Shampa is thinking about a 30-year variable-rate loan, which currently at 4.5% and which is tied to the six-month Treasury bill rate....
3. Suppose that the short-term risk-free interest rate this year is r1 8% and that the...
3. Suppose that the short-term risk-free interest rate this year is r1 8% and that the expected value of next year's interest rate is r2 7.5%. Suppose that a two-year zero coupon bond with face value $1000 sells for $820. a. What is the yield to maturity of the 2-year zero? b. Your answer to (a) demonstrates that the yield curve can slope upward even if the market thinks that interest rates are likely to fall. To explain this result,...
9. (10 points) Suppose that the spot in spot interest rate on a two-year zero-com year...
9. (10 points) Suppose that the spot in spot interest rate on a two-year zero-com year Zero-coupon bond is 40 ar zero-coupon bond is 3.0%, the Assume annual compound a. (6 points) Based on the pure expectat is the expected one-year inte approximation from class.) se that the spot interest rate one-year zero-coupon Zero-coupon bond is 4.0 and the spot interest rate on a three al compounding throughout the problem. points) Based on the nume r ations theory of the...
Suppose you are holding a 7 year Treasury bond with coupon rate of 5%. With expectations...
Suppose you are holding a 7 year Treasury bond with coupon rate of 5%. With expectations that economy will slow down the Federal Reserve cuts federal funds rate and other interest rates decrease. Newly issued bonds have lower coupon rates. Which is most likely to happen? A. increase market demand for your 5% coupon bond. B. decrease market demand for your 5% coupon bond. C. decrease market supply of your 5% coupon bond. D. increase market supply of your 5%...
Problem 3: (3 points) Suppose the interest rate on a 1-year T-bill is 5.0% and that...
Problem 3: (3 points) Suppose the interest rate on a 1-year T-bill is 5.0% and that on a 2-year T-note is 6.0%. Assume that the pure expectations theory is NOT valid, and the MRP is zero for a 1- year T-bill but 0.4% for a 2-year note. What is the equilibrium market forecast for 1-year rates 1 year from now?
Suppose the interest rate and therefore the yield to maturity) increases by the same amount on Treasury bills and bonds. Between a one-year Treasury bill, and a twenty-year Treasury bond, an investor would prefer a one-year Treasury bill The following are reasons why the yield to maturity can be less than than the return of a bond except that O A. the time to maturity and the holding period are not the same OB. the coupon payment over the purchase...
new home and you have six so fixed-rate loans are now very Suppose. Shampa just signed a purchase and sale agreement on a weeks to obtain a mortgage. Interest rates have been falling attractive. Shampa could lock in a fixed rate of 7% ( annual percentage rate) for 30 years. On the other hand, rates are falling, so Shampa is thinking about a 30-year variable-rate loan, which currently at 4.5% and which is tied to the six-month Treasury bill rate....
3. Suppose that the short-term risk-free interest rate this year is r1 8% and that the expected value of next year's interest rate is r2 7.5%. Suppose that a two-year zero coupon bond with face value $1000 sells for $820. a. What is the yield to maturity of the 2-year zero? b. Your answer to (a) demonstrates that the yield curve can slope upward even if the market thinks that interest rates are likely to fall. To explain this result,...
9. (10 points) Suppose that the spot in spot interest rate on a two-year zero-com year Zero-coupon bond is 40 ar zero-coupon bond is 3.0%, the Assume annual compound a. (6 points) Based on the pure expectat is the expected one-year inte approximation from class.) se that the spot interest rate one-year zero-coupon Zero-coupon bond is 4.0 and the spot interest rate on a three al compounding throughout the problem. points) Based on the nume r ations theory of the...
Problem 3: (3 points) Suppose the interest rate on a 1-year T-bill is 5.0% and that on a 2-year T-note is 6.0%. Assume that the pure expectations theory is NOT valid, and the MRP is zero for a 1- year T-bill but 0.4% for a 2-year note. What is the equilibrium market forecast for 1-year rates 1 year from now?
Most questions answered within 3 hours.
-
The denaturation of proteins can be described by the
equilibrium
F⇌U
where F and U represent...
asked 40 minutes ago -
Please answer what the maximum and minimum force is, and the
angle on the ion is...
asked 42 minutes ago -
implement a program that reads a number of rows and a symbol.
The program will draw...
asked 48 minutes ago -
Assume that when adults with smartphones are randomly selected,
45% use them in meetings or classes....
asked 52 minutes ago -
Determine the number of formula units of
Na2SO4 and moles of oxygen contained in 8.11
moles...
asked 1 hour ago -
Explain in steps on the following code
What would be the output when executed
using System;...
asked 1 hour ago -
Given the information in the table, which of the following
statements is CORRECT?
Stock A
Stock...
asked 1 hour ago -
Write MARIE assembly language programs that do the following:
Write a program that inputs an integer...
asked 1 hour ago -
Explain an understanding of services and protocols.
Explain the job of DNS.
Explain the three email...
asked 1 hour ago -
(As soon as possible) Balance each of the following equations
according to the half-reaction method:
H2O2(aq)...
asked 1 hour ago -
A thin rod with a mass of 3.5kg and a length L=1.5 m is oriented
horizontally....
asked 1 hour ago -
Inheritance pattern in BRCA 1
Describe the inheritance pattern of BRCA 1 Is it recessive or...
asked 1 hour ago