FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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If the current yield of a bond goes down from 6.9% to 4.8%, by what percent does the market price increase?
Round your answer to the nearest percent.
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- Assume that the real risk-free rate is 2.4% and that the maturity risk premium is zero. If a 1-year Treasury bond yield is 5.6% and a 2-year Treasury bond yields 6.3%. Calculate the yield using a geometric average. What is the 1-year interest rate that is expected for Year 2? Do not round intermediate calculations. Round your answer to two decimal places. % What inflation rate is expected during Year 2? Do not round intermediate calculations. Round your answer to two decimal places. % Comment on why the average interest rate during the 2-year period differs from the 1-year interest rate expected for Year 2. The difference is due to the inflation rate reflected in the two interest rates. The inflation rate reflected in the interest rate on any security is the average rate of inflation expected over the security's life. The difference is due to the real risk-free rate reflected in the two interest rates. The real risk-free rate reflected in the interest rate on any security is the…arrow_forwardConceptually good plsarrow_forwardConsider a bond that has a price of $1046.76, a coupon rate of 8.8%, a yield to maturity of 8.1%, a face value of $1000, and 10 years to maturity. What is the current yield? Enter your answer as a percentage. Do not include the percentage sign in your answer. Enter your response below. Enter your answer to 2 DECIMAL PLACES. Number %arrow_forward
- If you sell a bond with a coupon of 6 percent to a dealer when the market rate is 7 percent, which one of the following prices will you receive?arrow_forwardWhat is the price of the bond that has a coupon rate of 5.6%, a yield to maturity of 6.3%, a face value of $1000, and 25 years to maturity? The coupon payments are annual. Enter your response below. Enter your answer to rounded 2 DECIMAL PLACES.arrow_forwardIf the YTM on a bond is 17.5 %, what will be the periodic rate assuming the bond is paying coupons semi-annually? (Write this number as a decimal and not as a percentage, e.g. 0.11 not 11%. Round your answer to three decimal places. For example 1.23450 or 1.23463 will be rounded to 1.235 while 1.23448 will be rounded to 1.234).arrow_forward
- Answer this question using the Par Value formula and showing all work. You have been given the following information for an existing bond that provides coupon payments. Par Value: $2000 Coupon rate: 6% Maturity: 4 years Required rate of return: 6%. What is the Present Value (PV) of the bond? If the required rate of return by investors were 11% instead of 6%, what would the Present Value of the bond be? Look at the same Par Value $2,000 Same Coupon rate: 6% Maturity: 10 years Required rate of return: 7% What is the Present Value of the Bond now? Explain how the longer maturities and higher required rate of return by investors affects the bond valuation.arrow_forwardSuppose today you buy a coupon bond that you plan to sell one year later. Which of the rate of return formula incorporates future changes into the bond's price?arrow_forwardA 6.5 percent coupon bond with 14 years left to maturity is priced to offer a yield to maturity of 7.2 percent. You believe that in one year, the yield to maturity will be 6.8 percent. What is the change in price the bond will experience in dollars? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Change in bond pricearrow_forward
- Assume that the real risk free rate is 2% and the average expected inflation rate is 3% for each future year. The default risk premium and the liquidity premium for bond x are each 1% and the applicable Maturity Risk premium is 2% what is bond x’s interest rate. Round to 2 decimal placesarrow_forwardIf the current yield of a bond goes down from 6.1% to 4.5%, by what percent does the market price increase?arrow_forwardSuppose you bought a 10 year coupon bond with par value $500 and coupon rate 4%. What is the market price of this bond two years later if the current yield is 1.5%? State your answer as a number rounded to 2 decimal points (e.g. if you get $7.991353, write 7.99).arrow_forward
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