A U.S. Treasury bond will pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRE O a. The present value of the $1,000 would be smaller if interest were compounded monthly rather than semiannually. O b. The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year, $333.33 ordinary annuity. O c. The periodic interest rate is greater than 3%. O d. The present value would be greater if the lump sum were discounted back for more periods. Oe. The periodic rate is less than 3%.

A U.S. Treasury bond will pay a lump sum of $1,000 exactly 3 years from today. The nominal interest rate is 6%, semiannual compounding. Which of the following statements is CORRE O a. The present value of the $1,000 would be smaller if interest were compounded monthly rather than semiannually. O b. The PV of the $1,000 lump sum has a higher present value than the PV of a 3-year, $333.33 ordinary annuity. O c. The periodic interest rate is greater than 3%. O d. The present value would be greater if the lump sum were discounted back for more periods. Oe. The periodic rate is less than 3%.

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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1. The interest rate on a 1-year Canadian bond is 4.5%. The current exchange rate is C $1= US $0.75. The 1-year forward rate is C $1= US $0.80. The return (denominated in US$) that a U.S. investor can earn by investing in the Canadian security is A) 11.4 %. B) 11.5 C) 11.6 D) 11.7
Nn. 120.
Three-year Treasury bills currently yield 6 percent. Four-year Treasury bills currently yield 6.5 percent. Assume that the expectations theory What does the market believe the rate will be on one-year Treasury securities three years from now? holds. a. 8.0% b. 8.5% c. 9.0% d. 9.5% e. 10.0%
Suppose our corporation can borrow in EUR at 0.08% for 1 year. The current exchange rate is USD1.10/EUR, and the EUR is expected to appreciate against the dollar to USD1.2/EUR. What is the interest rate cost of the bond in USD? Please enter your answer as % -- e.g. if your answer is 2.34% type in 2.34.
The British government has a consul bond outstanding paying £100 per year forever. Assume the current interest rate is 4% per year. What is the value of the bond immediately after a payment is made? What is the value of the bond immediately before a payment is made?
(YTM, semiannual payments) On 15 August 1990, the U.S. Treasury issued a bond maturing on 15 February 2020. The bond has a coupon rate of 8.75%, payable semi - annually on 15 February and 15 August. If on 22 June 2015 a $100 face value bond is selling for $138.89, what is the bond's yield to maturity
One-year Treasury bills currently earn 5.50 percent. You expect that one year from now, one-year Treasury bill rates will increase to 5.75 percent. If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities? 5.50% 5.625% 5.75% 11.25%
Suppose you (U.S. investor) purchase a 5-year, AA-rated Euro bond for par that is paying an annual coupon at the rate equal to 8 percent. The bond has a face value of 1,000 Euros. The spot exchange rate at the time of purchase is USD1.15/EUR. At the end of the year 1, the bond is upgraded to AAA-rated and the yield changes to 7.5% per annum continuous compounding. In addition due to changes in macroeconomic environment, the exchange rate also changed to USD1.25/EUR. Assume that a U.S. investor holds this bond for one year and sells it in the market at the end of year 1. EUR is the abbreviation for Euro and USD is the abbreviation for U.S. dollar. What is the overall gain / loss in U.S. dollars for the U.S. investor at the end of year 1 (t = 1 year)? (Roundoff your answer to four decimal places, in order to get as accurate answer as possible on Canvas. If your answer is -$1.2345, loss of $1.2345, then type your answer as -1.2345.)
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, 7 years to maturity, and a coupon rate of 7.3 percent paid annually. If the YTM is 9.3 percent, what is the current bond price in euros? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. hond price
Desert Trading Company has issued $100 million worth of long-term bonds at a fixed rate of 10%. The firm then enters into an interest rate swap where it pays a LIBOR rate of 7% and receives a fixed 5.5% on notional principal of $100 million. What is the firm's effective interest rate on its borrowing? (Round your answer to 1 decimal place.) Answer is complete but not entirely correct. 8.0 Effective interest rate
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, 8 years to maturity, and a coupon rate of 7.5 percent paid annually. If the YTM is 9.5 percent, what is the current bond price in euros? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Current bond price € 647.50
A bank has issued a six-month, $1.0 million negotiable CD with a 0.53 percent quoted annual interest rate (iCD, sp). a. Calculate the bond equivalent yield and the EAR on the CD. b. How much will the negotiable CD holder receive at maturity? c. Immediately after the CD is issued, the secondary market price on the $1 million CD falls to $998,900. Calculate the new secondary market quoted yield, the bond equivalent yield, and the EAR on the $1.0 million face value CD. Required A: Bond Equivalent Yield ___ EAR____ (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 3 decimal places.) Required B: CD Holder will receive at maturity_____(Do not round intermediate calculations. Round your answer to nearest whole number.) Required C: Bond Equivalent Yield____ Secondary Market Quoted Yield______ EAR_____ (Use 365 days in a year. Do not round intermediate calculations. Round your answers to 4 decimal places.

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