Answered: ion of your bond if interest rates…

ion of your bond if interest rates increase by 2 percentage points? Group of answer choices The duration will increase The duration will decrease The duration won't ch

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

Related questions

Q: Calculate the modified duration of a bond that pays an annual coupon at a rate of 6% and matures in…

A: Modified duration is the adjusted version of the Macaulay duration and it takes into account the…

Q: I need help with calculating and entering it into excel.

Q: n-paying bond matures exactly 10 years and 4 months from now. Find the bond’s coupon rate if a…

A: Given question : Time period (years) 10.4 Future price 121 Current price 119 Interest rate…

Q: You are given the following data for two bonds with semiannual payments (A and B) Bond Years to…

A: Here, Bond value is 'P' The coupon payment is 'C' The coupon rate is 'r' The period of compounding…

Q: Suppose that you buy a two-year 8.9% bond at its face value. a-1. What will be your total…

A: Given information: 2 year bond with yield : 8.9% Inflation for the first year : 3.9% Inflation for…

Q: Consider a bond with a coupon rate of 8% and a yield to maturity of 5%, will this bond sell for…

A: Current Market price of the bond is calculated using Financial Calculator Assuming, Face value of…

Q: How much are you willing to pay for a bond with $1,000 face value and an 7% coupon rate with 2 years…

A: The price of a bond today is the sum total of all future payments receivable in the form of coupon…

Q: An investor wants to earn a minimum return of 2.5% over the next 5 years. He doesn't want to take…

A: A portfolio manager is a professional who makes financial decisions and manages investments on…

Q: You consider purchasing bonds today. There are three future time periods, t = 1, 2, 3, where bonds…

A: Arbitrage is the simulataneous purchase and sale of an asset in different markets to exploit tiny…

Q: Consider an annual 4 year coupon bond paying a coupon rate of 5%. If it is 1000 par and the YTM= .04…

A: Bond is a fixed interest bearing instrument that is issued by the company for funds and has a…

Q: What would the price be today of a 10-year bond issued 7 years ago with 3 years of maturity left…

A: The price of the bond is the sum of the present value of expected cash flows from the bond at a…

Q: (a) You hold a two period bond that pays a coupon C at the end of each period. The interest rate is…

A: a) Holding two-period bonds pays coupon C at the end of each period. Rate of interest = i The Price…

Q: Two bonds A and B have the same credit rating, the same par value and the same coupon rate. Bond A…

A: Honor Code:-Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer…

Q: Consider a semi-annual bond that has a par value of 100, a 15-year maturity, a 5% coupon rate.…

A: Hi, since you have posted a question with multiple-subparts, we will answer the first three. Please…

Q: Suppose you buy a bond with a coupon of 6.6 percent today for $1,110. The bond has 7 years to…

A: a)Computation of rate of return on the investment:Hence, the rate of return is 4.72%

Q: (a) You hold a two period bond that pays a coupon C at the end of each period. The interest rate is…

A: Bond price can be defined as the present value of the Face value at maturity along with the coupon…

Q: You want to invest in a risk-free investment for the next 3 years. You can invest in a 3-year zero…

A: According to the term structure theory of pure expectation hypothesis, there is no difference…

Q: Which of the following statements is CORRECT? a. The shorter the time to maturity, the greater the…

A: Bond Maturity is the future specific date at which the face value of the bond is repaid to the…

Q: Suppose you have a 2-year bond with a coupon rate of 5% and a yield to maturity of 6%. This bond's…

A: Here, Modified Duration is 1.952 years

Q: he YIM on a bond is the interest rate you earn on your investment if interest rates don't hange. If…

A: As per the information provided: Annual coupon bond - $825 Coupon rate - 8.4% Years to maturity - 8…

Q: You find a bond with 27 years until maturity that has a coupon rate of 9.0 percent and a yield to…

A: Given, The term to maturity is 27 years Coupon rate 9% Yield to maturity is 8.1%

Q: According to the expectations theory, what will be the interest rate on a three-year bond if the…

A: Interest rate of long term bonds are higher than short term bonds

Q: a) You hold a two-period bond that pays a coupon c at the end of each period. The interest rate is…

A: The current market price of a bond is the total of the present values of all types of cash inflows…

Q: Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a…

A: Here, Current Real Risk Free Rate is 3% Inflation for next 2 years is 2% Inflation for next 4 years…

Q: A bond quotes a rate of return of 5% and will pay $1,000 in one year with a probability of 42% and…

A: Time value of money is based on the concept that money earned today is worth more than similar…

Q: Bond J is a 4 percent coupon bond. Bond K is a 12 percent coupon bond. Both bonds have nine years to…

A: Year(n) Cash Flows PVF@8% PV of CF n. PV 1 4 0.925926 3.703704 3.703704 2 4 0.857339 3.429355…

Q: Two bonds A and B have the same credit rating, the same par value and the same coupon rate. Bond A…

A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If…

Q: uppose that 6 months after you purchase the bond, the market rate for interest on this type of bond…

A: Bond valuation according to financial management is done by discounting all the expected future cash…

Q: calculate the price of a $1,000, 5% bond with 4 years to maturity with 6.5 % market interest rates.…

A: Par Value of Bond is 5% Coupon rate is 5% Time to maturity is 4 years Market interest rate is 6.5%…

Q: Suppose you purchase a $1000 Face-Value Zero-Coupon Bond with maturity 30 years and yield to…

A: Par Value of Bond is $1,000 Time period is 30 years Yield to maturity is 4% To Find: Price of bond…

Q: 1. evaluating which of the following would you purchase the following $1,000 face value bond and…

A: Bonds refer to the financial instruments that can be issued by government for raising long term…

Q: ear U.S. treasury bond that pays a coupon of 10 in one year from now and a coupon and principal of…

A: The given problem can be solved using PV function in excel. PV function computes current price for…

Q: You find a bond with 27 years until maturity that has a coupon rate of 9.0 percent and a yield to…

A: Bond price: The yield-to-maturity of a bond and its price are adversely connected. The price of a…

Q: . You buy a 6 year bond with an annual 5% coupon at par value, $1000. If the yield to maturity at…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: You are considering a bond with the following characteristics: R100 Par Value 10% Annual Coupon 5…

A: The Price of Bond is calculated with the help of following formula Price of Bond = Present Value of…

Q: Solve the following questions without using Excel. A 5 year bond with a coupon of 7%, that pays…

A: The bond convexity refers to the curvature bond price and the yield that describes the relationship…

Q: According to the expectations theory, what will be the interest rate on a three-year bond if the…

A: Expectation theory helps to find an interest rate of long term bonds. are perfect substitutes. This…

Q: Two bonds A and B have the same credit rating, the same par value and the same coupon rate. Bond A…

A: Hi, since the question has multiple sub-parts, we will answer the first three. Please re-post the…

Q: Suppose that you buy a two-year 7.3% bond at its face value. a-1. What will be your total…

A: Given: Interest on bond = 7.3% Maturity period = 2 years 1st year inflation = 2.3% 2nd year…

Q: A 5-year bond with a yield of 4% (continuously compounded), with a face value of $100, pays an 3%…

A: A financial instrument that doesn’t affect the ownership of the common shareholders or management of…

Q: Suppose that a bond has an 8% coupon, a 6% YTM, and a 4% YTC and is callable in 3 years. For this…

Q: Suppose there are two bonds, a 10-year zero coupon bond and a 2-year zero coupon bond. Currently,…

A: A bond is a debt instrument which is issued by the company in order to meet his financial…

Q: Assume a bond with 5% coupon has a current market price of $974, a duration of 13.5 years, and…

A: The bond price is a function of interest rates. When the interest rate decline, the bond price…

Q: Consider a semi-annual bond that has a par value of 100, a 15-year maturity, a 5% coupon rate.…

A: Bonds are a part debt financial assets where guaranteed income is received by the bondholder at the…

Q: general power bond varies a coupon rate of 9.2%, has 9 years until maturity, and sells at a yield to…

A: Since in this question, no information regarding face value is given therefore it is assumed to be…

Q: Suppose that you buy a 1-year maturity bond with a coupon of 7% paid annually. If you buy the bond…

A: Calculation of real rate of return: Excel spread sheet:

Concept explainers

Debenture Valuation

A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.

Note Valuation

It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:

Question

Suppose that you have invested in a Treasury bond with a term-to-maturity of 8 years. What will happen to the duration of your bond if interest rates increase by 2 percentage points?

Group of answer choices

The duration will increase

The duration will decrease

The duration won't change

Not enough information

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

What would be the value of the bond described in Part d if, just after it had been issued, the expected inflation rate rose by 3 percentage points, causing investors to require a 13% return? Would we now have a discount or a premium bond? What would happen to the bond’s value if inflation fell and rd declined to 7%? Would we now have a premium or a discount bond? What would happen to the value of the 10-year bond over time if the required rate of return remained at 13%? If it remained at 7%? (Hint: With a financial calculator, enter PMT, I/YR, FV, and N, and then change N to see what happens to the PV as the bond approaches maturity.)
What do you have to do to the interest rate and years of maturity if a bond pricing problem tells you that interest is compounded quarterly?
D3) Currently, the market interest rate on a bond is 10%. Yield-to-Maturity is a return you can reliaze when you are investing in a bond until its maturity. If you decide to sell the bond before the maturity, what would be your realized return like? and why?
d. If you hold the bonds for one year, and interest rates do not change, what total rate of return will you earn, assuming that you pay the market price? Why is this different from the current yield and YTM?
The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy a bond with an annual coupon rate of 10 percent for $1, 120. The bond has 17 years to maturity. What rate of return do you expect to earn on your investment?
After recently receiving a bonus, you have decided to add some bonds to your investment portfolio. You have narrowed your choice down to the following bonds (assume semiannual payments): Which bond would you rather own if you expect market rates to fall by 2% across the maturity spectrum? What if rates will rise by 2%? Why?
Suppose the interest rate on a 1-year T-bond is 6.3 % and that on a 3 year T-bond is 7.3 %. Assuming the pure expectations theory is correct, what is the market's forecast for 2-year rates 1 year from now? Enter your answer as a percentage and do not use the % symbol.
The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy a bond with an annual coupon of 10 percent for $1,120. The bond has 17 years to maturity. What rate of return do you expect to earn on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b- Two years from now, the YTM on your bond has declined by 1 percent and you 1. decide to sell. What price will your bond sell for? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b- What is the HPY on your investment? (Do not round intermediate calculations and 2. enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected rate of return b-1. Bond price b-2. HPY % %
The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy a bond with an annual coupon rate of 7 percent for $1,160. The bond has 15 years to maturity. What rate of return do you expect to earn on your investment? Assume a par value of $1,000. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b- Two years from now, the YTM on your bond has declined by 1 percent, and you 1. decide to sell. What price will your bond sell for? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b- What is the HPY on your investment? (Do not round intermediate calculations and 2. enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected rate of return b-1. Bond price b-2. HPY % I %
The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy a bond with an annual coupon of 11 percent for $1,130. The bond has 18 years to maturity. What rate of return do you expect to earn on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. Two years from now, the YTM on your bond has declined by 1 percent and you decide to sell. What
The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a.Suppose that today you buy a bond with an annual coupon rate of 6 percent for $1,150. The bond has 20 years to maturity. What rate of return do you expect to earn on your investment? Assume a par value of $1,000. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)b-1.Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)b-2.What is the HPY on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). (Round the final answers to 2 decimal places.) a. Suppose that today you buy an 9.2% annual coupon bond for $1,180. The bond has 19 years to maturity. What rate of return do you expect to earn on your investment? Expected rate of return % b-1. Two years from now, the YTM on your bond has