Suppose that you are considering investing in a 4-year bond that has a face value of $1,000 and a coupon rate of 5%. a.) If the market interest rate on similar bonds is 5%, the price of the bond is $nothing. (Round your response to the nearest cent.) The bond's current yield is nothing%. (Round your response to two decimal places.) b.) Suppose that you purchase the bond, and the next day the market interest rate on similar bonds falls to 4%. The price of the bond will be $nothing. (Round your response to the nearest cent.) The current yield will be nothing%. (Round your response to two decimal places.) c.) Now suppose that 1 year has gone by since you bought the bond, and you have received the first coupon payment. The market interest rate on similar bonds is still 4%. At an interest rate of 4%, the price an investor is willing to pay for the bond is $nothing. (Round your response to the nearest cent.) Your rate of return on the bond was nothing%. (Round your response to two decimal places.) Suppose investor A bought the bond a year ago for the amount that was calculated in part (b). Investor A's rate of return would have been nothing%. (Round your response to two decimal places.)
Suppose that you are considering investing in a 4-year bond that has a face value of $1,000 and a coupon rate of 5%. a.) If the market interest rate on similar bonds is 5%, the price of the bond is $nothing. (Round your response to the nearest cent.) The bond's current yield is nothing%. (Round your response to two decimal places.) b.) Suppose that you purchase the bond, and the next day the market interest rate on similar bonds falls to 4%. The price of the bond will be $nothing. (Round your response to the nearest cent.) The current yield will be nothing%. (Round your response to two decimal places.) c.) Now suppose that 1 year has gone by since you bought the bond, and you have received the first coupon payment. The market interest rate on similar bonds is still 4%. At an interest rate of 4%, the price an investor is willing to pay for the bond is $nothing. (Round your response to the nearest cent.) Your rate of return on the bond was nothing%. (Round your response to two decimal places.) Suppose investor A bought the bond a year ago for the amount that was calculated in part (b). Investor A's rate of return would have been nothing%. (Round your response to two decimal places.)
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
Related questions
Question
Suppose that you are considering investing in a 4-year bond that has a face value of
$1,000
and a coupon rate of
5%.
a.) If the market interest rate on similar bonds is
5%,
the price of the bond is
$nothing.
(Round your response to the nearest cent.)The bond's current yield is
nothing%.
(Round your response to two decimal places.)b.) Suppose that you purchase the bond, and the next day the market interest rate on similar bonds falls to
4%.
The price of the bond will be
$nothing.
(Round your response to the nearest cent.)The current yield will be
nothing%.
(Round your response to two decimal places.)c.) Now suppose that 1 year has gone by since you bought the bond, and you have received the first coupon payment. The market interest rate on similar bonds is still
4%.
At an interest rate of
4%,
the price an investor is willing to pay for the bond is
$nothing.
(Round your response to the nearest cent.)Your rate of return on the bond was
nothing%.
(Round your response to two decimal places.)Suppose investor A bought the bond a year ago for the amount that was calculated in part (b). Investor A's rate of return would have been
nothing%.
(Round your response to two decimal places.)d.) Now suppose that 2 years have gone by since you bought the bond and that you have received the first two coupon payments. At this point, the market interest rate on similar bonds unexpectedly rises to
10%.
At an interest rate of
10%,
the price an investor is willing to pay for the bond is
$nothing.
(Round your response to the nearest cent.)The current yield for your investment is
nothing%.
(Round your response to two decimal places.)Suppose Investor B bought the bond at the price you calculated in (c). Investor B's rate of return would have been
nothing%.
(Round your response to two decimal places.)Expert Solution
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