Consider the following: today's interest rate for a 12-year bond is 7%; today's interest rate for a 4-year bond is 4%; the interest rate for a 4-year bond, expected in 4 years is 5%. Find the interest rate for a 4-year bond expected in 8 years. The interest rate on the 12 year bond carries a .5% liquidity premium. Use the arithmetic or simple average approach.
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Consider the following: today's interest rate for a 12-year bond is 7%; today's interest rate for a 4-year bond is 4%; the interest rate for a 4-year bond, expected in 4 years is 5%. Find the interest rate for a 4-year bond expected in 8 years. The interest rate on the 12 year bond carries a .5% liquidity premium. Use the arithmetic or simple average approach.
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- 10. The bond has a 30-year maturity, an 8% coupon, and sells at an initial yield to maturity of 8%. Because the coupon rate equals yield to maturity, the bond sells at par value, or $1,000. The modified duration of the bond at its initial yield is 11.26 years, and its convexity is 212.4. If the bond's yield increases from 8% to 10%, the bond price will fall to $811.46, a decline of 18.85%. a. How does the price change according to the duration rule? b. How does the price change according to the duration-with-convexity rule?A zero-coupon bond is a bond that is sold for less than its face value (that is, it is discounted) and has no periodic interest payments. Instead, the bond is redeemed for its face value at maturity. Thus, in this sense, interest is paid at maturity. Suppose that a zero-coupon bond sells for $8,500 and can be redeemed in 20-years for its face value of $38,000. What is the annual compound rate of return? Annual compound rate = % (Round to two decimal places as needed.)1) If a $2,000 one-year bond pays $170 in annual interest, the interest rate on this bond is (do NOT use decimal)? 2) If the interest rate changes to 19.5%, the bond price will be? 3) If the interest rate changes to 16.5%, bond price will be?
- A bond has a Macaulay duration of 10.00 and is priced to yield 8.0%. If interest rates go up so that the yield goes to 8.5%, what will be the percentage change in the price of the bond? Now, if the yield on this bond goes down to 7.5%, what will be the bond's percentage change in price? Comment on your findings. If interest rates go up to 8.5%, the percentage change in the price of the bond is nothing%. (Round to two decimal places.) If interest rates go down to 7.5%, the percentage change in the price of the bond is nothing%. (Round to two decimal places.) Comment on your findings. (Select the best answer below.) A. As interest rates decrease, the price of the bond decreases. As interest rates increase, the price of the bond increases. B. As interest rates increase or decrease, the price of the bond will always increase. C. As interest rates increase or decrease, the price of the bond remains the same. D. As interest rates…Consider a bond without an expiration date that makes a fixed interest payment of $210 per year. Complete the following table by calculating the interest rate on the bond at different sale prices. (Hint: The effective interest rate on a bond is a ratio of the interest payment to the sale price of the bond times 100.) Price of Bond Interest Rate (Dollars) (Percent) 1,200 1,000 750 600 Use the blue points (circle symbol) and the preceding table to plot the relationship between bond prices and interest rates on the following graph. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. The line showing the relationship between bond prices and interest rates has a _____(POSITIVE/NEGATIVE) slope; in other words, there is _______(INVERSE / A DIRECT) relationship between bond prices and interest rates. NOTE- THIS QUESTION IS DIVIDED INTO SUBPARTS . PLEASE ANSWER…Bond A pays $8,000 in 20 years. Bond B pays $8,000 in 40 years. (To keep things simple, assume these are zero-coupon bonds, which means the $8,000 is the only payment the bondholder receives.) a. If the interest rate is 3.5 percent, what is the value of each bond today? Which bond is worth more? Why? (Hint: You can use a calculator, but the rule of 70 should make the calculation easy.) b. If the interest rate increases to 7 percent, what is the value of each bond? Which bond has a larger percentage change in value? c. Based on the example above, complete the two blanks in this sentence: "The value of a bond [rises/falls] when the interest rate increases, and bonds with a longer time to maturity are [more/less] sensitive to changes in the interest rate.
- Calculate the bond yield rate (%) for a bond with an annual interest payment of $200 and a market price of $9,000.Recently, the European Central Bank (ECU) has been worried about inflation and thus needs to make a decision about interest rates, and thus the resulting bond prices. Assume we are talking about Euron an Savings Bonds (ESB) and you are given the following information: The European Savings Bond (ESB) has no expiration date: The ESB price =$1,000 the ESB has a fixed annual interest payment =$10, ' e ESB annual interest rate =10 percent. If the price of the ESB increases to $5,000, the interest rate will Multiple Choice ◻ rise to 50 percent. ◻ fall to 4 percent. ◻ fall to 5 percent. ◻ rise to 12 percent. ◻ fall to 2 percent.A bond with a face value of $1,000 has 8 years until maturity, has a coupon rate of 8%, and sells for $1,100. What is the yield to maturity if interest is paid once a year? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places. What is the yield to maturity if interest is paid semiannually? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places.
- Making the assumption of no compounding interest , suppose you purchase a perpetuity bond from CosoNostra Pizza Inc. for $ 4,000 with an annual coupon rate of 3 % . Specify all answers to the nearest dollar , and assume a discount rate equal to that of the current interest rate . Changes in the economy push interest rates up from 3 % to 5 % . For how much can you sell your bond following this change in market interest rates ?Answer the question based on the following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest yield = 10 percent. If the price of this bond increases to $2,500, the interest yield willYou are an investor currently holding 1.5 million U.S. dollars, and you are contemplating the following strategies. 1)Investing in the U.S. 5-year treasury bonds.2)Investing in the 5-year government bonds of one of the countries listed below. Your strategy is to exchange your funds on the spot market into the foreign currency, buy the local government bond, and after the bond’s maturity, exercise a forward to change your funds back into USD. Spot and forward rates are listed below. There are no put and call rates (the spread is equal to zero). The forward, however, costs 2% of the exchanged value.Required:1.Find the most profitable strategy. Calculate the future and present values of all 11 strategies (U.S. treasury bonds and 10 foreign government bonds).2.Explore the concept of arbitrage on the currency exchange markets and critically evaluate how it relates to this situation.
