Principles of Macroeconomics
6th Edition
ISBN: 9780073518992
Author: Robert H. Frank, Ben Bernanke Professor, Kate Antonovics, Ori Heffetz
Publisher: McGraw-Hill Education
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Chapter 8, Problem 8P
(a)
To determine
Identify the principal amount, term, coupon rate, and coupon payment.
(b)
To determine
Identify the expected
(c)
To determine
Describe the reasons for changes in the
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11. A zero coupon bond is selling for $476. The bond has a face value of $1,000 and matures
in 8 years. Your friend asks you if he should buy the bond. He tells you his required return is
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1. What is the present value of $500.00 to be paid in two years if the annual interest rate is 5%? $___
2. The current interest rate on a 10-year treasury note (with face value = $100 and annual coupon rate = 2.625%) is 3.37%. The buyer of this note will receive $ ____ payment from the treasury every year before maturity while holding the bond.
Suppose that you purchase a 2 year coupon bond at the time it is issued for $1100. The face value of the bond is $1000, with annual coupon payments of $80.
a. What is the bond’s “coupon rate”?
b. What is the bond’s “current yield”?
c. What is the bond’s (nominal) “yield to maturity”?
d. If you hold the bond for 1 year and sell it for $1035 (after collecting the first coupon payment), what is your “holding period rate of return”?
Please answer all part otherwise Dounvote
Chapter 8 Solutions
Principles of Macroeconomics
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Similar questions
- How is buying a house to live in a type of financial investment?arrow_forwardWhy are bonds somewhat risky to buy, even though they make predetermined payments based on a fixed rate of interest?arrow_forward2. What is the price of a 6.15%, $250,000 coupon bond that matures in twelve years if the annual rate of discount is 5.35%?arrow_forward
- f a coupon bond has two years to maturity, a coupon rate of 8%, a par value of $1000, and a yield to maturity of 12%, then the coupon bond will sell for $ ? (Round your response to the nearest two decimal place) What will the coupon bond sell for?arrow_forwardConsider a coupon bond that has a $1.000 par value and a coupon rate of 9%. The bond is currently selling for $1,150 and has 9 years to maturity. What is the bond's yield to maturity?arrow_forwardConsider a bond with a three-year remaining maturity. A. If somehow the face value of the coupon is $10,000 and the annual payment is $500. If the yield to maturity is 6%, what would the price of this bond be? b. Considering your response to question (a), is the coupon rate higher, lower, or the same as the yield to maturity? Why?arrow_forward
- 11. The face value of a bond is $10,000, and the annual coupon payment is $850. What is the coupon rate?arrow_forwardWhat is the price of a two year bond with a 9% annual coupon and a yield to maturity of 8%?arrow_forward3. What is the yield to maturity of a 15% coupon bond selling for $900 that has a face value of $1,000?arrow_forward
- 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 $8,500 and can be redeemed in 20-years for its face value of $38,000. What is the annual compound rate of return? Annual compound rate = % (Round to two decimal places as needed.)arrow_forward3.57 Consider the following three individuals. Just after their 19th payment: o Robert Dixon had a balance of $80,000 on a 9%, 15-year mortgage; o Wanda Harper had a balance of $80,000 on a 9%, 20-year mortgage; and o Tony Zang had a balance of $80,000 on a 9%, 30-year mortgage. How much interest did each individual pay on the 20th payment?arrow_forwardIf an initial investment of $1,000 is invested at 8% interest per year with continuous compounding, how much would be in the account after five years? A. $1,291.8 B. $1,481.6 C. $1,491.8 D. $1,391.9 What refers to the amount of a product made available for sale? A. Supply B. Demand C. Product D Goodarrow_forward
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