EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Chapter 14A.4, Problem 2TTA
To determine
Annual yield of bill
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What is the percentage change in price for a zero coupon bond if the yield changes from 6.5% to 5.5%? The bond has a face value of$1,000 and it matures in 10 years.
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Two bonds have identical times to maturity, face value, and coupon rates.
The current price of the first one is $105 and the second is being traded at $110. Which should have the higher yield to matury? Why?
You purchase the $110 bond today and sell it off next year at $108. What is its one-year rate of return (assume the bond’s coupon rate is 5% and its face value is $100)?
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Chapter 14A Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
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- A zero-coupon bond is a bond that is sold for less than its face value (that is, it is discounted) and has no periodic interest payments. Instead, the bond is redeemed for its face value at maturity. Thus, in this sense, interest is paid at maturity. Suppose that a zero-coupon bond sells for $8,800 and can be redeemed in 20-years for its face value of $48,000. What is the annual compound rate of return? Annual compound rate = % (Round to two decimal places as needed.)arrow_forwardSuppose a 10-year, $1,000 bond with a(n) 11% coupon rate and semiannual coupons is trading for a price of $970.75. a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? b. If the bond's yield to maturity changes to 9% APR, what will the bond's price be?arrow_forwardConsider a bond with a face value of $2,000 that pays a coupon of $50 for 1 year (that is, you will receive both the face value and one coupon payment next year). Suppose the bond is purchased at $2,000. What is the yield to maturity of the bond? 2.5% 25% 1.025% 1.25%arrow_forward
- A five-year bond with a yield of 11% (continuously compounded) pays an 8% coupon at the end of each year. a) What is the bond’s price? b) What is the bond’s duration? c) Use the duration to calculate the effect on the bond’s price of a 0.2% decrease in its yield. d) Recalculate the bond’s price on the basis of a 10.8% per annum yield and verify that the result is in agreement with your answer to (c).arrow_forwardIf the interest rate is 10%, what is the present value of a security that pays you $1100 next year, $1210 the year after, and $1331 the year after that? (Just provide a numerical answer; no dollar sign required.) Answer:arrow_forwardA bond with a face value of $1,000 has 8 years until maturity, has a coupon rate of 8%, and sells for $1,100. What is the yield to maturity if interest is paid once a year? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places. What is the yield to maturity if interest is paid semiannually? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places.arrow_forward
- Suppose a ten-year, $1,000 bond with an 8.9% coupon rate and semiannual coupons is trading for $1,035.05. a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)?arrow_forwardConsider a bond which has a face value of $2,000, a coupon of $50, and is known to have a yield to maturity of 8%. Suppose that the bond matures in five years. What is the present value of the bond? $199.63 $1,526.77 $1,560.80 $373.85arrow_forwardA $1000-face-value bond has a 10% coupon rate, its current price is $960, and its price is expected to increase to $980 next year. Calculate the current yield, the expected rate of capital gain, and the expected rate of return.arrow_forward
- 11. Two years ago, you bought a fifteen- year bond at its par value of P1,000. The coupon rate on this bond is 9% payable annually. Today (just after receiving the second annual coupon payment), the current yield on the bond is 7.5%. What is the value of the bond today?arrow_forwardWhat is the yield to maturity on a simple loan for $5 million that requires a repayment of $9 million in seven years’ time?arrow_forwardA Store makes a $10,500 investment at a Bank Ltd on January 1, 2019. At the end of December 31, 2023, the Store is expected to accumulate an amount of $17166.25? i. Calculate the interest rate needed to procure this investment? ii. How long will it take for the initial amount invested to be doubled, given that interest is compounded annually at the rate?arrow_forward
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