a. If the level of interest rates increase (possibly due to an increase in expected inflation rates) for the overall eco...
a. If the level of interest rates increase (possibly due to an increase in expected inflation rates) for the overall economy, how do bond prices of existing, outstanding bonds react, and why?
b. In other words it is a kind of debt security under which the seller is owed to the ... But higher the default risk premium, the more will be the required return 'r'. ... A 10-year bond has a face value of $1,000 with a coupon rate of 10%. .... rate, U.S Treasury bond as well as the corporate bond with equal maturity and marketability.
Bonds Par vs. Bond Market:
c. What is the most common par value amount for corporate bonds?
d. What conditions have to be met for a bond's market value to be equal to the bonds par value?
Homework Answers
a. If the level of interest rate increases bond prices of existing, outstanding bonds will decrease this is due to in market people get more interest rates than by investing in bonds hence the price of bond decreases.
b. The par value of a bond is the price at which bonds are issued and the market value of a bond is the current price at which the bonds are traded the value can change depending upon the change in interest rates in the market.
c. The most common par value for a corporate bond is either $100 or $1000
d. for a bonds market value to be equal to the bonds par value the yield to maturity of the bond should be equal to the market interest rate.
Add Answer to:
a. If the level of interest rates increase (possibly due to an increase in expected inflation rates) for the overall eco...
If the level of interest rates decrease (possibly due to a decrease in expected inflation rates)...
If the level of interest rates decrease (possibly due to a decrease in expected inflation rates) for the overall economy, how do bond prices of existing, outstanding bonds react, and why?
The Federal Reserve purchases U.S. Treasury securities to: increase interest rates Oincrease the money supply O...
The Federal Reserve purchases U.S. Treasury securities to: increase interest rates Oincrease the money supply O decrease expected inflation. increase tax rates reduce credit availability If a bond's yield to maturity exceeds its coupon rate, the bond's: maturity value is more than its face value price must be less than its par value current yield is equal to the capital gain on the maturity of the bond. current yield is equal to the coupon rate. maturity value is less than...
1. 1 in Nation is expected to be relatively low, then Interest rates will tend to...
1. 1 in Nation is expected to be relatively low, then Interest rates will tend to be relatively high, other things held constant 2. True b. False 2. Which of the following statements is CORRECT? 2. If the maturity risk premium (MRP) is greater than rero, the Treasury bond yield curve must be upward sloping b. If the maturity risk premium (MRP) equals zero, the Treasury bond yield curve must be flat. c. If inflation is expected to decrease in...
If market interest rates increase, investors in corporate bonds will see the current market value of...
If market interest rates increase, investors in corporate bonds will see the current market value of their bonds do what in the secondary market? a. If the market interest rates increase, the coupon rate on the bond increases b. When market interest rates increase, the market value of corporate bonds increase c. Remain the same, because the face value never changes d. When market interest rates increase, the market value of corporate bonds decrease
Bonds Par Value vs. Bond Market Value (3 points each): a) What is the most common par value amount for corporate bonds...
Bonds Par Value vs. Bond Market Value (3 points each): a) What is the most common par value amount for corporate bonds ? b) What conditions have to be met for a bond's market value (i.e., price) be equal to the bond's par value?
Select one A the real rate, a default risk premium and expected inflation question B. the...
Select one A the real rate, a default risk premium and expected inflation question B. the real rate, expected inflation and a default risk premium C. expected inflation, a default risk premium and a maturity premium D. the real rate, expected inflation, and a maturity premium. 25 The is the face value of the bond. Select one 0 out of A coupon X B. maturity date question C. coupon tate D. par value 26 Vitmix Industries Inc. is issuing a...
3. Determinants of market interest rates Aa Aa Some characteristics of the determinants of nominal interest...
3. Determinants of market interest rates Aa Aa Some characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic: Characteristic Component Symbol This is the rate for a short-term riskless security when inflation Real risk-free rate is expected to be zero. TRF This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power over time. As interest rates rise, bond...
The real risk-free rate of interest is expected to remain constant at 2.5%. The inflation rate is...
The real risk-free rate of interest is expected to remain constant at 2.5%. The inflation rate is expected to be 3% (Year 1), 4.2% (Year 2), and 4.6% thereafter. The maturity risk premium (MRP) is equal to 0.079(t-1)%, where t-the bond's maturity. A 4-year corporate bond yields 8%, what is the yield on a 10-year corporate bond that has the default risk and liquidity premiums 1% higher than that of the 4-year corporate bond?
The real risk-free rate of interest...
6) Which of the following statements about bonds is true? A) If market interest rates are...
6) Which of the following statements about bonds is true? A) If market interest rates are above a bond's coupon interest rate, then the bond will sell below its par value. B) As the maturity date of a bond approaches, the market value of a bond will become more volatile. C) Bond prices move in the same direction as market interest rates. D) Long-term bonds have less interest rate risk than do short-term bonds.
The real risk-free rate is 2%, and inflation is expected to be 4% for the next...
The real risk-free rate is 2%, and inflation is expected to be 4% for the next 2 years. A 2-year Treasury security yields 7.3%. What is the maturity risk premium for the 2-year security? Jackson Corporation's bonds have 11 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 11%. The bonds have a yield to maturity of 12%. What is the current market price of these bonds?
The Federal Reserve purchases U.S. Treasury securities to: increase interest rates Oincrease the money supply O decrease expected inflation. increase tax rates reduce credit availability If a bond's yield to maturity exceeds its coupon rate, the bond's: maturity value is more than its face value price must be less than its par value current yield is equal to the capital gain on the maturity of the bond. current yield is equal to the coupon rate. maturity value is less than...
1. 1 in Nation is expected to be relatively low, then Interest rates will tend to be relatively high, other things held constant 2. True b. False 2. Which of the following statements is CORRECT? 2. If the maturity risk premium (MRP) is greater than rero, the Treasury bond yield curve must be upward sloping b. If the maturity risk premium (MRP) equals zero, the Treasury bond yield curve must be flat. c. If inflation is expected to decrease in...
Bonds Par Value vs. Bond Market Value (3 points each): a) What is the most common par value amount for corporate bonds ? b) What conditions have to be met for a bond's market value (i.e., price) be equal to the bond's par value?
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3. Determinants of market interest rates Aa Aa Some characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic: Characteristic Component Symbol This is the rate for a short-term riskless security when inflation Real risk-free rate is expected to be zero. TRF This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power over time. As interest rates rise, bond...
The real risk-free rate of interest is expected to remain constant at 2.5%. The inflation rate is expected to be 3% (Year 1), 4.2% (Year 2), and 4.6% thereafter. The maturity risk premium (MRP) is equal to 0.079(t-1)%, where t-the bond's maturity. A 4-year corporate bond yields 8%, what is the yield on a 10-year corporate bond that has the default risk and liquidity premiums 1% higher than that of the 4-year corporate bond?
The real risk-free rate of interest...
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