Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 13, Problem 12E
To determine
Define current yield on a bond. Do interest rate change when
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- 7. If a simple discount bond sells above par, what do you know about the interest rate?arrow_forwardA bond has a Macaulay duration of 10.00 and is priced to yield 8.0%. If interest rates go up so that the yield goes to 8.5%, what will be the percentage change in the price of the bond? Now, if the yield on this bond goes down to 7.5%, what will be the bond's percentage change in price? Comment on your findings. If interest rates go up to 8.5%, the percentage change in the price of the bond is nothing%. (Round to two decimal places.) If interest rates go down to 7.5%, the percentage change in the price of the bond is nothing%. (Round to two decimal places.) Comment on your findings. (Select the best answer below.) A. As interest rates decrease, the price of the bond decreases. As interest rates increase, the price of the bond increases. B. As interest rates increase or decrease, the price of the bond will always increase. C. As interest rates increase or decrease, the price of the bond remains the same. D. As interest rates…arrow_forwardWhat might cause interest rates to be low one year and high the next?arrow_forward
- Why does longer-term bonds fluctuate more when interest rate change, than does shorter-term bondsarrow_forwardRaphael observes that at the current level of interest ratesthere is an excess supply of bonds, and therefore he anticipates an increase in the price of bonds. Is Raphael correct?arrow_forwardWhat is an interest rate future? How can they be used to reduce interest rate risk by a borrower?arrow_forward
- The price of a bond with no expiration date is originally $1,000 and has a fixed annual interest payment of $150. If the price of the bond then falls by $250, what will be the interest rate yield to a new buyer of the bond?arrow_forwardIf the price of a one year T-Bill is $2,860 and the value at maturity is $3,000, what would be the yield(interest rate)?arrow_forwardImagine that a local water company issued a $10,000 ten-year bond at an interest rate of 6%. You are thinking about buying this bond one year before the end of the ten years, but interest rates are now 9%. Calculate what you would actually be willing to pay for this bond.arrow_forward
- Assume that a bond has a face value of $250,000. It has a maturity of 1 year and the coupon rate of interest is 5%. If the current market price of this bond is $225,000, what is the yield to maturity? If the market price of the bond increases to $240,000, what happens to the yield to maturity?arrow_forwardWhat does it mean to say that a bond has a value less than one for its relative yield differential? What might account for such a difference?arrow_forwardArjay plans to sell a bond that matures in one year and has a principal value of $1,000. Can he expect to receive $1,000 in the bond market for the bond? Explain.arrow_forward
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