Provide correct answer general Accounting A bond promises a risk-free payment of$1000 in one year. The risk-free rate ofinterest is 4.75%. What is the price of thebond?

Step 1: Define Bond InvestmentBonds are debt instruments that pay interest on a regular basis and…

Answered: A bond promises a risk-free payment of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Consider a bond that promises the following cash ows. The required discount rate is 12%. Year 0 1 2 3 4 Promised Payments 160 170 180 230 You plan to buy this bond, hold it for 2.5 years, and then sell the bond. a.What total cash will you receive from the bond after the 2.5 years? Assume that periodic cash ows are reinvested at 12%. b.Assuming all market interest rates are 12%, what is the duration of this bond?
Suppose the yield on a two-year-old Treasury bond is 5 percent and the yield on a one-year Treasury bond is a 4 percent. If the maturity risk premium (MRP) on these bonds is zero (0), what is the expected one-year interest rate during the second year (Year 2)?
Suppose that the yield curve shows that the one-year bond yield is 8 percent, the two-year yield is 7 percent, and the three-year yield is 7 percent. Assume that the risk premium on the one-year bond is zero, the risk premium on the two-year bond is 1 percent, and the risk premium on the three-year bond is 2 percent. a. What are the expected one-year interest rates next year and the following year? The expected one-year interest rate next year = The expected one-year interest rate the following year b. If the risk premiums were all zero, as in the expectations hypothesis, what would the slope of the yield curve be? The slope of the yield curve would be (Click to select) % %
You are considering a 10-year, Rs. 1000 par value bond. Its coupon rate is 10% and interest is paidsemiannually. If you require an effective annual interest rate of 8%, how much should you be willingto pay for the bond? Is effective annual interest rate differing from coupon rate? Explain.
Consider a 10-year bond with a face value of $1,000 that has a coupon rate of 5.8%, with semiannual payments.
Consider a two-year bond with a face value $1000 and a coupon rate 4.2%paid annually.(a) On the market, the 2-year interest rate is 3%. What is the fair marketprice for this bond?(b) When the interest rate increases to 5%, what would the bond pricebecome?(c) What if the interest rate falls to 1%?
Suppose the interest rate on a 1-year T-bond is 5.00% and that on a 2-year T-bond is 6.40%. Assume that the pure expectations theory is NOT valid, and the MRP is zero for a 1-year T-bond but 0.40% for a 2-year bond. What is the yield on a 1-year T-bond expected to be one year from now?
Assume the real risk-free rate of interest is 2%, inflation will be 3% for the next 2 years then inflation will be 4% thereafter, the maturity risk premium is 0.1%(t-1), the default risk premium is 2% and the liquidity premium is 1%. What is the yield on a 5-year bond?
You are considering a 10-year, Rs. 1000 par value bond. Its coupon rate is 10% and interest is paid semiannually. Ifyou require an effective annual interest rate of 8%, how much should you be willing to pay for the bond? Is effective annual interest rate differing from coupon rate? Explain.
Let's denote the price of a nonmaturing bond (called a consol) as P. The equation that indicates this price is Pn =-, where I is the annual net income the bond generates and r is the nominal market interest rate. a. Suppose that a bond promises the holder $200 per year forever. The nominal market interest rate is 6 percent. Calculate the bond's current price: S. (Round your answer to the nearest whole dollar.)
Suppose that the constant and perpetual cash flow is $1,000 and the discount rate is 10%. What is the value of this perpetuity? 5-year bond with a coupon rate of 4% has a face value of $1000. What is the annual interest payment?
Suppose the current interest rate on a one-year bond is 2% and the current interest rate on a two-year bond is 4%. The term premium on a two-year bond is 1%. According to the expectations hypothesis, what interest rate should we expect on a one-year bond next year? Answer as a percentage to one decimal place and do not include symbols (e.g. $, %, commas) in your answer. Answer:

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A bond promises a risk-free payment of $1000 in one year. The risk-free rate of interest is 4.75%. What is the price of the bond?