Suppose a bond with no expiration date has a face value of $10,000 and annually pays a fixed amount of interest of $850. a. In the table provided below, calculate and enter either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed or the bond price at each of the interest yields shown. Instructions: Enter your answers in the gray-shaded cells. For bond prices, round your answers to the nearest hundred dollars. For interest yields, round your answers to 2 decimal places. Bond Price Interest Yield, % $ 8,500 8.95 S 10,500 $ 11,500 6.30 b. What generalization can you draw from the completed table? O There is insufficient data to make a generalization. O Bond prices and interest rates are not related. Bond prices and interest rates are inversely related. O Bond prices and interest rates are directly related.

Suppose a bond with no expiration date has a face value of $10,000 and annually pays a fixed amount of interest of $850. a. In the table provided below, calculate and enter either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed or the bond price at each of the interest yields shown. Instructions: Enter your answers in the gray-shaded cells. For bond prices, round your answers to the nearest hundred dollars. For interest yields, round your answers to 2 decimal places. Bond Price Interest Yield, % $ 8,500 8.95 S 10,500 $ 11,500 6.30 b. What generalization can you draw from the completed table? O There is insufficient data to make a generalization. O Bond prices and interest rates are not related. Bond prices and interest rates are inversely related. O Bond prices and interest rates are directly related.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter19: The Basic Tools Of Finance

Section: Chapter Questions

Problem 3PA

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In country Macroland, the government borrows at 5% for 1-year maturity. However, the Central Bank has announced interest rate hikes for the following years, so people expect that the next year the same 1-year bond will pay 7% and that the interest will rise again to 8% in the year after. Compute and draw the yields curve (for 1, 2 and 3 years bonds) of the government of Macroland, assuming that there is no risk of default and no inflation and the Central Bank announcements are credible..
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