40. Bond X pays an annual coupon of 8%, Bond Y pays a 10% annual coupon, and Bond Z pays a 12% annual coupon. The notes have a ten-year term and a ten-percent yield to maturity. Which of the comments below is the most accurate? a. Bond X has the highest chance of reinvestment pace. b. Bond Z's price would be 10% higher one year from today if market interest rates hold at 10%. c. As market interest rates rise, the price of Bond X will rise, the price of Bond Z will fall, and the price of Bond Y will stay unchanged. d. Bond Z's price would be lower one year from now than it is today if market interest rates hold at 10%. e. Once market interest rates fall, all of the bonds would have a price rise, with Bond Z seeing the highest percentage increase.

40. Bond X pays an annual coupon of 8%, Bond Y pays a 10% annual coupon, and Bond Z pays a 12% annual coupon. The notes have a ten-year term and a ten-percent yield to maturity. Which of the comments below is the most accurate? a. Bond X has the highest chance of reinvestment pace. b. Bond Z's price would be 10% higher one year from today if market interest rates hold at 10%. c. As market interest rates rise, the price of Bond X will rise, the price of Bond Z will fall, and the price of Bond Y will stay unchanged. d. Bond Z's price would be lower one year from now than it is today if market interest rates hold at 10%. e. Once market interest rates fall, all of the bonds would have a price rise, with Bond Z seeing the highest percentage increase.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 10P

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Consider two bonds x and y, both with face value 100, coupon rate 10%, and maturity of 1 year. Assume that the interest rate is 10%. Assume that bond y will go into default on both the principal and interest payments with a probability of 50%. Suppose that prices equal the expected discounted payments. What is the difference in the yields to maturity? (a) The yields to maturity are the same. (b) 110. (c) 120. (d) 10. (e) 12.
Suppose the yield on a 10-year T-bond is currently 5.05% and that on a 10-year Treasury Inflation Protected Security (TIPS) is 1.80%. Suppose further that the MRP on a 10-year T-bond is 0.90%, that no MRP is required on a TIPS, and that no liquidity premium is required on any T-bond. Given this information, what is the expected rate of inflation over the next 10 years? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average.
Example: Suppose that a bond has a face value of P100,000and its maturity date is 10 years from now. The coupon rate is5% payable semi-annually. Find the fair price of this bond, assuming that the annual market rate is 4%. Given: Coupon rate r= 5%, payable semi - annually Face Value = 100.000 Time to maturity = 10 years Number of periods = 2|10) = 20 Market rate = 4% The bondholder receives 20 payments of P2,500 each, and P100,000 at t- 10. Present Value of 100,000: F 100000 = 67,556.42 1+ jm -1+0.0410 Present Value of 20 payments of Php2500 each: Convert 4% to equivalent semi-annual rate: 1 = (1+)"-1= (1+) - I = 0.0404 Direction: Answer the following just like the given example above. 1. Suppose that a bond has a face value of P220, 000 and its maturity date is 6 years from now. The coupon rate is 5% payable semi-annually. Find the fair price of this bond, assuming that the annual market rate is 8%. 2. Suppose that a bond has a face value of P50, 000 and its maturity date is 5 years…
Example: Suppose that a bond has a face value of P100,000and its maturity date is 10 years from now. The coupon rate is5% payable semi-annually. Find the fair price of this bond, assuming that the annual market rate is 4%. Given: Coupon rate r= 5%, payable semi - annually Face Value = 100,000 Time to maturity = 10 years Number of periods = 2(10) = 20 Market rate = 4% The bondholder receives 20 payments of P2,500 each, and P100,000 at t = 10. Present Value of 100,000: F P =- 100000 = 67,556.42 1+ 0.0410 Present Value of 20 payments of Php2500 each: Convert 4% to equivalent semi-annual rate: 1+ jm 0.04 1= (1+=)" -1 - (1+ ) - 1 - 1 = m 2 | = 0.0404
Suppose that yield rates on zero coupon bonds are currently 26 for a one-year maturity, 3% for a two-year maturity and 4.% for a three-year maturity (all effective annual rates). Suppose that someone is willing to borrow money from you starting one year from now to be repaid three years from now at an effective annual interest rate of 6.5146438635186%. Construct a transaction in which an arbitrage gain can be obtained. What is your positive net gain for net investment of 0? (net cashflow at t-3) 01345 One possible correct answer is: 0.030250290387703
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Quantitative Problem: Today, interest rates on 1-year T-bonds yield 1.3%, interest rates on 2-year T-bonds yield 2.3%, and interest rates on 3-year T-bonds yield 3.7%. a. If the pure expectations theory is correct, what is the yield on 1-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places. % 1.3 Show All Feedback b. If the pure expectations theory is correct, what is the yield on 2-year T-bonds one year from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places. 2.4 % Show All Feedback c. If the pure expectations theory is correct, what is the yield on 1-year T-bonds two years from now? Be sure to use a geometric average in your calculations. Do not round intermediate calculations. Round your answer to four decimal places. 3.8 Show All Feedback