The demand curve and supply curve for one-year discountbonds with a face value of $1,000 are represented by thefollowing equations:Bd: Price = -0.8 * Quantity + 1100Bs: Price = Quantity + 680a. What is the expected equilibrium price and quantityof bonds in this market?b. Given your answer to part (a), what is the expectedinterest rate in this market
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The demand curve and supply curve for one-year discount
bonds with a face value of $1,000 are represented by the
following equations:
Bd
: Price = -0.8 * Quantity + 1100
Bs
: Price = Quantity + 680
a. What is the expected
of bonds in this market?
b. Given your answer to part (a), what is the expected
interest rate in this market
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- Suppose that, holding yield constant, investors are indifferent as to whether they hold bonds issued by the federal govemment or bonds issued by state and local governments (that is, they consider the bonds the same with respect to default risk, information costs, and liquidity) Suppose that state governments have issued perpetuities (or consoles) with $78 coupons and that the federal govemment has also issued perpetuities with $78 coupons. If the state and federal perpetuites both have after-tax yields of 8%, what are their pre-tax yields? (Assume that the relevant federal income tax rate is 31.13%) * The pre-tax yield on the state perpetuity will be______________% * The pre-tax yield on the federal perpetuity will be_______________%4. Tompton has estimated that near the point of equilibrium, the demand curve and sunnly oum for bonds can be estimated using the following equations: Bd: Price = -2 Quantity + 850 BS: Price = Quantity + 600 a. What is the expected equilibrium price and quantity of bonds in this market? b. Given your answer to part (a), which is the expected interest rate in this marketoE3 The demand curve and supply curve for one-year discount bonds were estimated using the following equations: Bd Price=-2/5Quantity+990 Bs Price=Quantity+500 As the stock market continued to rise, the Federal Reserve felt the need to increase the interest rates. As a result, the new market interest rate increased to 19.65%, but the equilibrium quantity remained unchanged. What are the new demand and supply equations? Assume parallel shifts in the equations
- In a 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 inflation2. The demand curve and supply curve for one-year discount bonds with a face value of $900 are represented by the following equations Bd: Q = = -0.25 P + 200, B³: P = 2Q- 100. What is the expected equilibrium price and quantity of discount bonds in this market? What is the yield to maturity in this market?Suppose a call option with an exercise price of $100 for 1y / 3% coupon Australian government bonds can be purchased at $10. a) Draw the option's payoff line, indicating when the option is in-, at- and out-of-the-money and at which bond price it breaks even. b) Suppose you decided to long this option. Explain briefly in which direction bond yields need to move to make this choice a profitable decision.
- Answer the given question with a proper explanation and step-by-step solution. Q3. Estimate the rate of return (yield to maturity) if you as an investor purchase a one-year US TN at the market price of $955 with an FV of $1,000. Make sure you show the numerical estimation by using the yield equation. Q4. Draw a hypothetical demand and supply curve for S&P 500 stocks and briefly explain the effects of unexpected increase in inflation rate caused by a sudden rise in energy prices. Q5. Draw a demand and supply curve of the loanable funds market and explain the effects on equilibrium prices and quantities of loanable funds in response to the situation described in Q4. Q6. Suppose the increase in tariffs on imports of goods and services from China and EU countries caused a capital flight of currency from the United States. Show the effects this would have on US exports, imports, and trade balances.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..Respond to the question with a concise and accurate answer, along with a clear explanation and step-by-step solution, or risk receiving a downvote. Q2 Briefly describe the difference in the bond market in general and the stock market in the context of investment and return. Why is corporate bond investment usually riskier than investing in US Treasury securities? Q3. Estimate the rate of return (yield to maturity) if you as an investor purchase a one-year US TN at the market price of $955 with an FV of $1,000. Make sure you show the numerical estimation by using the yield equation. Q4. Draw a hypothetical demand and supply curve for S&P 500 stocks and briefly explain the effects of unexpected increase in inflation rate caused by a sudden rise in energy prices. Q5. Draw a demand and supply curve of the loanable funds market and explain the effects on equilibrium prices and quantities of loanable funds in response to the situation described in Q4. Q6. Suppose the increase in…
- Based on the concept of present value, the yield to maturity of a coupon bond is calculated by: P C/ (1+i) + C/ (1+i) 2 + C/ (1+i) 3 + .C/ (1+i)" (P stands for the price of bond, C for the coupon payments, i for the yield to maturity, and n for the years to maturity.) True FalseA 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.Explain what the term "bond price elasticity" means. Would bond price elasticity indicate that zero-coupon or high-coupon bonds with the same yield to maturity have a greater price sensitivity? Why? What does this mean for the market value volatility of zero-coupon Treasury bonds vs high-coupon Treasury bonds in mutual funds?
