4. We can define bond as a financial device through which a borrower (a firm or government) isobligated to pay the principal and interest on a loan at specific dates in the future. Answer questionsrelating to interest rates and bond prices using the following information: The price of a bond withno expiration date is $1000 and its fixed annual interest payment is $50; bond annual rate of interestis 5%.(a) If the price of this bond decreases by $250 to $750, what will its effective interest rate be for thenew buyer? %, because(b) If the price of this bond increases to $1200, what will its effective interest rate be for the newbuyer?(c) When bond prices go up from (a) to (b), interest rates go (up, down, nowhere).%, because

Effective Interest rate of a bond is the yield on the bond. It is rate that defines the rate of…

If the price of this bond decreases by $250 to $750, what will its effective interest rate be for the new buyer? If the price of this bond increases to $1200, what will its effective interest rate be for the new buyer? When bond prices go up from (a) to (b), interest rates go (up, down, nowhere). % because % because

If the price of this bond decreases by $250 to $750, what will its effective interest rate be for the new buyer? If the price of this bond increases to $1200, what will its effective interest rate be for the new buyer? When bond prices go up from (a) to (b), interest rates go (up, down, nowhere). % because % because

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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Similar questions

If the current yield of a bond goes down from 6.1% to 4.5%, by what percent does the market price increase?
K Using the formula given below: F-P P if the market price of a $1,000-face-value discount bond changes from $925 to $950, the yield to maturity decreases by%. (Round your response to two decimal places.) Rbonds =
26. Suppose that a long-term coupon bond with a coupon rate of 5% is purchased today at its face value of $1,000 and resold a year later for a price of $950. The holding period return for the bond is equal to: a. 0% b. 2% c. 3% d. 5% 27. A decrease in the market interest rate will cause the value of a bank's portfolio of fixed-payment loans to: a. rise b. fall c. remain unchanged d. rise or fall, depending on the maturity of the bonds 28. A risk-free consol provides an annual payment of $50. If the market interest rate is 5%, the price of the consol will be: a. $55 b. $500 c. $1,000 d. $1,050
Which statements is INCORRECT? Treasury bonds (T-bond) have maturities up to 30 years A coupon bond is called a discount bond when its market price is less than its fair price A bond's yield to maturity (YTM) is the return an investor earns if holding the bond until its maturity Treasury bills (T-bill) have maturities up to one year
The interest rate changes to i' in the second period. Evaluate the rates of return when you sell the bond after one period in the case of the change being (i) anticipated (ii) unanticipated. ? [P'
All else the same, if interest rates fall, then 1. bond prices will rise II. coupon payments on floating rate bonds will fall III. the percentage price change for short-term bonds will be greater than for long-term bonds IV. the percentage price change for high coupon bonds will be greater than for low coupon bonds Select one: Oa. I, III, and IV only Ob.land Il only Oc. Il and IV only
The price of a bond is 900$, if the coupon rate decreased, the price of this bond will? a. Remain the same. b. Increase. c. Decrease.
plwase help
What is the current value of a 30-year bond making semi-annual coupon payments that has a face value of $1,000 and a coupon rate of 8%, if the YTM is 4%, how much does the bond currently sell for? Does the bond sell at a discount, premium, or at face value? Reference the below formulas when solving the problem above: PV = FV / (1+r)^t FV = PV(1+r)^t FVA = PMT(((1+r)^t) -1) / r FVA = PMT((1+(r/12)^t(12))-1)/(r/12) PVA = PMT(((1-(1+r)^-t) / r)) PVA = PMT((1-(1+(r/12))^-t(12)))/(r/12) Bo = PMT ((1-(1+r/2)^-t(2))) / r/2 + FV / (1+r/2)^t(2)
None
Question 2 a. A bond that matures in one year has a $500 face value and a $60 coupon. What is the price of the bond if the interest rate is 6 percent and the bond was purchased by the present owner for $450? b. A bond that matures in two years has a face value equal to F and a coupon equal to R. Suppose that the yield to maturity, i, is such that i = ( R / F ). The price of the bond equals... F F/(1+i) F(1+i) F/i Answer both otherwise don't do that I will Dounvote
211 Suppose that i = 10%. Let $z= 100. What is the present value of the consol? expected present discounted value of a bond that p a. b. If i = 10%, what is the expected present discounted value of a bond that pays 2 (- $100) over the next 10 years? 20 years? 30 years? 60 years? (Hint: Use equation (1) on of for the file-151 Page 5 but remember to adjust for the first payment.) 15155772

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