A one-year bond currently pays 3.6% interest. It's expected that itwill pay 3.1% next year and 2.0% the following year. The two-yearterm premium is 0.1% while the three-year term premium is0.15%. What is the interest rate on a three-year bond according tothe liquidity premium theory?O 3.00%O 1.15%O 3.05%O 2.9%

1. Expected future short-term interest rates:• Year 1: 3.6%• Year 2: 3.1%• Year 3: 2.0%2. Term…

Answered: A one-year bond currently pays 3.6%…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider a one-year discount bond that has a present value of P1,500. If the rate of discount is 4 percent, the future value of the bond (the amount the bond pays in one year) is * P1,560.00 P1,540.00 P1,440.00 P1,442.31
A 10-year bon have an interest rate of 6.50%, while a 15-year bond have an interest rate of 6.0%. Holding the expectation theory, what does the market believe will be the interest rate on a 5-year bond, 10 years from today? 5.00% 5.60% 6.35% 12.50%
Bond X is a premum bond making semiannual payments. The bond has a coupon rate of 7 percent, a YTM of 5 percent, and 19 years to maturity Bond Y is a discount bond making semiannual payments. This bond has a coupon rate of 5 percent a YTM of 7 percent. and also has 19 years to maturity. Both bonds have a par vaiue of $1,000 a. What is the price of each bond today? b. interest rates remain unchanged, what do you expect the price of these bonds to be 1 year from now? In 10 years? In 14 years? in 18 years? In 19 years? Note: For all requirements, do not round intermediate calculations and round your answers to 2 decimal places, *g. 32.16. a. Price today b. Price in 1 year Price in 10 years Price in 14 yas Price in 18 years Price in 19 years Bond X Bond Y
Question What is meant by LIBOR and LIBID. Which is higher? The 6-month and 1-year zero rates are both 10% per annum. For a bond that has a life of 18 months and pays a coupon of 8% per annum (with semiannual payments and one having just been made), the yield is 10.4% per annum. What is the bond’s price? What is the 18-month zero rate? All rates are quoted with semiannual compounding.
calculate the price of a $1,000, 5% bond with 4 years to maturity with 6.5 % market interest rates. what is the duration of this bond? calculare the expected orice change in $s if interest rates increase to 7% using the duration price approximation forumula
If we are using annual returns and the YTM of a 10 year bond is 5.3% and the YTM of an11 year bond is 5.4% What is the forward rate from year 10 to 11?
A 14-year bond pays semi-annual coupons at j2 = 9% and has a yield rate of j2 = 7.1%. If the book value immediately after the 7th coupon payment is $1038.45, and the book value immediately after the 11th coupon payment is $1034.51, what is the bond's face value? Answer: $ NOTE: Assume the note is NOT redeemable at par.
The one year interest rate over the next ten years will be 6%, 7.5%, 8.5%, 10%, 10.5%, 11%, 12%, 13%, 14% and 15%. Using the expectations theory, what will be the interest rates on a three-year bond, five year bond, eight year bond, and ten year bond?
assume the interest rate on a 1-year t bond is currently 7% and the rate on a 2-year bond is 9%. If the maturity risk premium is .5% what is a reasonable forecast of the rate on a 1 year T bond next year. Round to 2 decimals places
Bond A is a premium bond making semiannual payments. The bond has a coupon rate of 7.5%, a YTM of 6%, and 13 years to maturity. Bond B is a discount bond making semiannual payments. This bond has a coupon rate of 6%, a YTM of 7.5%, and also 13 years to maturity. What are the prices of these bonds today assuming both bonds have a $ 1000 par value? If interest rates remain unchanged, what do you expect the prices of these bonds to be in 2 years and in 12 years?
(i) If investors have demanded an interest rate of 5 percent on the bond investment, what is the maximum prices to pay for the 1-year bond and 30-year bond? (ii) Suppose that the interest rate has increased to 20%, calculate the values of the 1-yearbond and 30-year bond.(iii) Based on the calculations in parts (b) (i) and (ii) above, explain with reasons thefundamental relationship between interest rates and bond maturity. (iv) Briefly explain the meaning of the terms “bond’s coupon rate”, “current yield”, and“yield to maturity”. (v) Explain why bonds have protective covenants.
A $1,000 bond has a coupon of 4 percent and matures after tên years. ASsume that the bond pays interest annually. a. What would be the bond's price if comparable debt yields 6 percent? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $ b. What would be the price if comparable debt yields 6 percent and the bond matures after five years? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. c. Why are the prices different in a and b? The price of the bond in a is -Select- v than the price of the bond in b as the principal payment of the bond in a is -Select- v than the principal payment of the bond in b (in time). d. What are the current yields and the yields to maturity in a and b? Round your answers to two decimal places. The bond matures after ten years: CY: % YTM: % The bond matures after five years: CY: YTM:

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