Assume that all interest rates in the economy decline from 8 percent to 7 percent. Which of the following bonds will have the smallest percentage increase in price? A A 10-year zero coupon bond. B D E An 8-year bond with a 9 percent coupon. A 3-year bond with a 10 percent coupon. A 10-year bond with a 10 percent coupon. A 1-year bond with a 15 percent coupon.

Assume that all interest rates in the economy decline from 8 percent to 7 percent. Which of the following bonds will have the smallest percentage increase in price? A A 10-year zero coupon bond. B D E An 8-year bond with a 9 percent coupon. A 3-year bond with a 10 percent coupon. A 10-year bond with a 10 percent coupon. A 1-year bond with a 15 percent coupon.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 5MC: What would be the value of the bond described in Part d if, just after it had been issued, the...

See similar textbooks

Similar questions

Which of the following bonds would have the greatest percentage increase in value if all interest rates in the economy fall by 1%? 1. 10-year, zero coupon bond. 2. 1-year, 10% coupon bond. 3. 20-year, 5% coupon bond. 4. 20-year, zero coupon bond. 5. 20-year, 10% coupon bond.
Which of the following bonds would have the greatest percentage decrease in value if all interest rates in the economy rose by 1%? (Ch. 7) Group of answer choices 10-year, zero coupon bond. 1-year, 10% coupon bond. 20-year, zero coupon bond. 20-year, 5% coupon bond. 20-year, 10% coupon bond.
Bond J has a coupon rate of 3 percent and Bond K has a coupon rate of 9 percent. Both bonds have 13 years to maturity, make semiannual payments, and have a YTM of 6 percent. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? Percentage change in price of Bond J=? Percentage change in price of Bond K=? What if rates suddenly fall by 2 percent instead? Percentage change in price of Bond J=? Percentage change in price of Bond K=?
(b)You purchase the $110 bond today and sell it off next year at $108. What is its one-year rate of return (assume the bond’s coupon rate is 5% and its face value is $100)? If the expected inflation over the course of the year is 2%, what would the ex-ante real rate of return be for the bond on part (b)?
Consider two zero coupon bonds. Both have face values of $100. Bond A pays its face value in 8 years, and Bond B pays its face in 2 years. If interest rates change from 9% to 7%, what is the percentage change in the long maturity bond's price minus the percentage change in the short maturity bond's price?
7. Which of the following bonds will have the greatest percentage increasein value if all interest rates decrease by 1 percent?a. 20-year, zero coupon bond.b. 10-year, zero coupon bond.c. 20-year, 10 percent coupon bond.d. 20-year, 5 percent coupon bond.e. 1-year, 10 percent coupon bond.
Consider a two-year bond with a face value $1000 and a coupon rate 4.2%paid annually.(a) On the market, the 2-year interest rate is 3%. What is the fair marketprice for this bond?(b) When the interest rate increases to 5%, what would the bond pricebecome?(c) What if the interest rate falls to 1%?
Consider two zero coupon bonds. Both have face values of $100. Bond A pays its face value in 8 years, and Bond B pays its face in 2 years. If interest rates change from 9% to 7%, what is the percentage change in the long maturity bond's price minus the percentage change in the short maturity bond's price? Express your answer in percentage form rounded to one decimal place.
A newly issued bond has a maturity of 10 years and pays a 7% coupon rate (with coupon payments coming once annually). The bond sells at par value. (i) What are the convexity and the duration of the bond? (ii) Find the actual price of the bond assuming that its yield to maturity immediately increase from 7% to 8% (with maturity still 10 years). (iii) What price would be predicted by the duration rule? What is the percentage error of that rule? (iv) What price would be predicted by the duration-with-convexity rule? What is the percentage error of that rule?
Bond J has a coupon rate of 6 percent. Bond K has a coupon rate of 9 percent. Both bonds have 9 years to maturity, make semiannual payments, and have a YTM of 7 percent. If interest rates suddenly rise by 3 percent, what is the percentage price change of Bond J? -17.95% -15.97% -16.97% -17.97% If Interest rates suddenly rise by 3 percent, what is the percentage price change of Bond K? -14.82% -16.80% -16.82% 27.26% If interest rates suddenly fall by 3 percent, what is the percentage price change of Bond J? -17.99% 23.11% 23.09% -23.38% If interest rates suddenly fall by 3 percent, what is the percentage price change of Bond K? 21.46% -4.84% 21.34% -16.84%
According to the expectations theory, what will be the interest rate on a three-year bond if the two-year term premium is 1.0% while the three- year term premium is 2.0%, and a one-year bond has an interest rate of 4% and is expected to have an interest rate of 5% next year and 6% in two year? Select one: O a. 5.0% O b. 15.0% O c. 4.0% O d. 6.0%
Using the information from the prior problem, what rate (in %s) do you expect a 5-year bond to have? From Prior: You observe that there is a one-year Treasury bond with a yield of 3.0%. You also assume that rates will increase and that the one-year bond will increase by 1.0% each year. For example, you expect the one-year bond in year 2 will be 4.0% and 5.0% in year 3.