A $1,000 face value corporate bond sells at par today. The bond's yield to maturity is 7% today. Due to strange economic events, interest rates in the economy are expected to rise by 1% overnight, so that the bond's yield to maturity is expected to be 8% tomorrow. What will the bond's price be tomorrow?

A $1,000 face value corporate bond sells at par today. The bond's yield to maturity is 7% today. Due to strange economic events, interest rates in the economy are expected to rise by 1% overnight, so that the bond's yield to maturity is expected to be 8% tomorrow. What will the bond's price be tomorrow?

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

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Suppose that a bond makes annual coupon payments at a 7% coupon rate, has 10 years until maturity, and is currently trading at 95. If the yield to maturity on the bond remains unchanged over the next year, what will be the total holding period return on the bond over the period? It should come out to 7.74% but I seem to be doing something wrong, thanks!
Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 9 years to maturity, and a coupon rate of 8.1 percent paid annually. If the YTM is 10.1 percent, what is the current bond price in euros?
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Even though most corporate bonds in the United States make coupon payments semianually, bonds issued elsewhere often have annual coupon payments. Suppose a German compay issues a bond with a par value of $1,000, 10 years to maturity, and a coupon rate of 6 percent paid annually. If the yield to maturity is 7.1 percent, what is the current price of the bond?
The real risk-free rate of interest is 1.57% at the beginning of 2021. Inflation is expected to be 2% in 2021, jump to 4.00% in 2022, and run at 3% in 2023. A maturity risk premium is expected to be 0.37% per year to maturity. A liquidity premium on corporate bonds issued by small companies will continue to be 0.50%, regardless of their maturities. What should the interest rate on a 3-year Treasury security be at the beginning of 2021? Group of answer choices 5.85% 5.31% 5.54% 6.18% 5.68%
The Wall Street Journal reports that the rate on 3-year Treasury securities is 7.10 percent, and the 6-year Treasury rate is 7.35 percent. From discussions with your broker, you have determined that expected inflation premium is 2.60 percent next year, 2.85 percent in Year 2, and 3.05 percent in Year 3 and beyond. Further, you expect that real interest rates will be 3.55 percent annually for the foreseeable future. What is the maturity risk premium on the 6-year Treasury security?
A 5-year Treasury bond has a 4.6% yield. A 10-year Treasury bond yields 6.3%, and a 10-year corporate bond yields 8.85%. The market expects that inflation will average 2.1% over the next 10 years (IP10 = 2.1%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities: DRP = LP = 0.) A 5-year corporate bond has the same default risk premium and liquidity premium as the 10-year corporate bond described. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. X Open spreadsheet What is the yield on this 5-year corporate bond? Round your answer to two decimal places. %
!
The yield on a 1-year zero-coupon bonds is currently 7%; the YTM on 2 -year zeros is 8%. The treasury plans to issue a 2 -year maturity coupon bond, paying coupons once a year with a coupon rate of 9%. The face value of the bond is $100. (BKM 15.11) a) At what price will the bond sell? 15 p b) If the expectations theory of the yield curve is correct, what is the market expectation of the price that the bond will sell for next year? c) Recalculate your answer to b) if you believe in the liquidity preference theory and you believe the liquidity premium is 1%.

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