suming that the market and coupon rates remain constant till maturity; a.the bond's price will remain constant over time b.No option is correct c.the bond price will approach its market value over time d.the bond's price will approach its face v
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Assuming that the market and coupon rates remain constant till maturity;
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- Coupon payments are fixed, but the percentage return that investors receive varies based on market conditions. This percentage return is referred to as the bond’s yield. Q1. Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? a. The bond is callable. b. The probability of default is zero. Consider the case of RTE Inc: Q2. RTE Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,130.35. However, RTE Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on RTE Inc.’s bonds? Value YTM ? YTC ? Q3. If interest rates are expected to remain constant, what is the best estimate of the remaining life left for RTE Inc.’s bonds? a. 8 years b. 10…The yield to maturity on a bond with a price equal to its par value will Select one: a. Will depend upon the required return. b. Will be lower than the coupon rate. c. Always be equal to the coupon rate. d. Will be more than the coupon rateAll else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity. A. a discount; less than B. a discount; higher than C. a premium; equal to D. a premium; less than
- The yield to maturity on a bond is A. below the coupon rate when the bond sells at a discount and equal to the coupon rate when the bond sells at a premium. B. the discount rate that will set the present value of the payments equal to the bond price. C. None of the options are correct. D. based on the assumption that any payments received are reinvested at the coupon rate.For the yield-to-maturity (YTM) to qual the actual compound return an investor realizes on an investment in a coupon bond, we must assume: O A. cash flows will be paid as promised. B. The bond will be held until maturity. C. cash flows will be reinvested at the YTM rate. D. All of the above.(Using algabreic formula to answer) (a) You hold a consol that pays a coupon C in perpetuity. The current interest rate is i, and the average expectation in the market is that this will remain unchanged. What will be the price of the consol today?(b) In the next period however, the interest rate changes unexpectedly to i'. What is the new price of the bond? If the bond is sold at the beginning of that next period, what is the yield from the consol? Does the yield increase or decrease if i' > i? (c) Suppose alternatively that the market expects that the interest rate will changeto i' after the initial period. What is the initial value of the consol, and what is the yield from selling it after one period?
- The forward rate f(t1,12) of a bond, is the implicit interest rate in a future period between time t1 and t2. For example, assuming continuous time returns, if the discount rate from period 0 to t1 is: exp(-r t1), and from period 0 to 12 (greater than t1) is: exp(-r t2), then the forward rate f from t1 to t2 maintains the following no arbitrage relationship: exp(-r t1) exp(-f (t2-t1) exp(-r t2)). Suppose we observe the prices of a 14-year zero-coupon bond (with a face value of $93.31), where P(t1,t2) regans the price of the bond between t1 and 12, and a year 7-to-14 forward rate as follows:P(0.14) - $86.5496905000 and f(7,14) - 0.6074704253 %. Calculate the price of a 7-year zero-coupon, with face value $99.27: $82.9604 $96.0778 ✓(25 %) $96.2349 $82.1804a) You hold a consol that pays a coupon in perpetuity. The current interest rate is i , and the average expectation in the market is that this will remain unchanged. What will be the price of the consol today? b) In the next period however, the interest rate changes unexpectedly to i 0. What is the new price of the bond? If the bond is sold at the beginning of that next period, what is the yield from the consol? Does the yield increase or decrease if 0 > i?(a) You hold a consol that pays a coupon C in perpetuity. The current interest rate is i, and the average expectation in the market is that this will remainunchanged. What will be the price of the consol today? (b) In the next period however, the interest rate changes unexpectedly to i'. What is the new price of the bond? If the bond is sold at the beginning of that next period, what is the yield from the consol? Does the yield increase or decrease if i'> i? (c) Suppose alternatively that the market expects that the interest rate will change to i' after the initial period. What is the initial value of the consol, and whatis the yield from selling it after one period?
- Coupon payments are fixed, but the percentage return that investors receive varies based on market conditions. This percentage return is referred to as the bond's yield. Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? O The bond is callable. O The probability of default is zero. Consider the case of Demed Inc.: Demed Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $950.35. However, Demed Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on Demed Inc.'s bonds? Value YTM YTC If interest rates are expected to remai constant, what is the best estimate of the remaining life left for Demed Inc.'s bonds? O 5 years O 13 years O 18 years O 8 years…(a) You hold a consol that pays a coupon C in perpetuity. The current interest rate is i, and the average expectation in the market is that this will remain unchanged. What will be the price of the consol today? (b) In the next period however, the interest rate changes unexpectedly to i 0 . What is the new price of the bond? If the bond is sold at the beginning of that next period, what is the yield from the consol? Does the yield increase or decrease if i 0 > i? (c) Suppose alternatively that the market expects that the interest rate will change to i 0 after the initial period. What is the initial value of the consol, and what is the yield from selling it after one period?The rate of return on a bond held to its maturity date is called the bond’syield to maturity. If interest rates in the economy rise after a bond hasbeen issued, what will happen to the bond’s price and to its YTM? Doesthe length of time to maturity affect the extent to which a given change ininterest rates will affect the bond’s price? Why or why not?