a. What is the duration of a two-year bond that pays an annual coupon of 12 percent and whose current yield to maturity is 14 percent? Use $1,000 as the face value. (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) b. What is the expected change in the price of the bond if interest rates are expected to decrease by 0.4 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Answer is complete but not entirely correct. a. Duration of bond 1.899 b. Expected change in the price S 7.32X

a. What is the duration of a two-year bond that pays an annual coupon of 12 percent and whose current yield to maturity is 14 percent? Use $1,000 as the face value. (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) b. What is the expected change in the price of the bond if interest rates are expected to decrease by 0.4 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Answer is complete but not entirely correct. a. Duration of bond 1.899 b. Expected change in the price S 7.32X

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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A Treasury bond that settles on October 18, 2022, matures on March 30, 2041. The coupon rate is 6.10 percent, and the bond has a yield to maturity of 5.57 percent. What are the Macaulay duration and modified duration? Note: Use the duration functions in Excel to solve the problem. Do not round intermediate calculations. Round your answers to 4 decimal places. Answer is complete but not entirely correct. Macaulay duration 11.4179 Modified duration 10.8154 X
What is the price of a bond that has a time to maturity of 4 years, a coupon rate of 3.3%, and a face value of $1,000, if the yield is 4.3%? (answer in dollars, with two decimal places but without the dollar sign, e.g. "983.23" is $983.23) Type your answer...
P2. Bond J has a coupon rate of 3 percent. Bond K has a coupon rate of 9 percent. Both bonds have 19 years to maturity, make semiannual payments, and have a YTM of 6 percent. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? What if rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower-coupon bonds?
Suppose you observe the following zero - coupon bond prices per $1 of maturity payment: 0.96154 (1-year), 0.91573 (2-year), 0.87630(3-year), 0.82270 (4- year), 0.77611 (5-year). What is the par coupon rate for the 4-year bond? Question 3 options: 3.999834% 4.488965% 4.492350 % 4.957679 % 5.144082%
Assume that the real risk-free rate is 2.4% and that the maturity risk premium is zero. If a 1-year Treasury bond yield is 5.6% and a 2-year Treasury bond yields 6.3%. Calculate the yield using a geometric average. What is the 1-year interest rate that is expected for Year 2? Do not round intermediate calculations. Round your answer to two decimal places. % What inflation rate is expected during Year 2? Do not round intermediate calculations. Round your answer to two decimal places. % Comment on why the average interest rate during the 2-year period differs from the 1-year interest rate expected for Year 2. The difference is due to the inflation rate reflected in the two interest rates. The inflation rate reflected in the interest rate on any security is the average rate of inflation expected over the security's life. The difference is due to the real risk-free rate reflected in the two interest rates. The real risk-free rate reflected in the interest rate on any security is the…
Both Bond Bill and Bond Ted have 10.6 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 6 years to maturity, whereas Bond Ted has 23 years to maturity. Both bonds have a par value of 1,000. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of these bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Bond Bill Bond Ted a. Percentage change in price b. Percentage change in price % % % %
D3)
PICK ONE: Explain why YOU: Suppose that 6 months after you purchase the bond, the market rate for interest on this type of bond falls to 7.00%. This will cause the (coupon / market price / par value) to (fall / rise). From the issuer’s perspective, the lower interest rate means that he or she would be (worse / better) off issuing new bonds at this lower rate than continuing to pay you 9%.
60) Why did I get this wrong?
Both Bond Bill and Bond Ted have 11.8 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 7 years to maturity, whereas Bond Ted has 24 years to maturity. Both bonds have a par value of 1,000. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of these bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Suppose the interest rate on a 1-year T-bond is 2.60% and that on a 2-year T-bond is 4.50%. Assume that the pure expectations theory is NOT valid, and the MRP is zero for a 1-year T-bond but 0.30% for a 2-year bond. What is the equilibrium market forecast for 1-year rates 1 year from now? a. 4.7333% b. 5.1110% c. 5.2676% d. 5.5463% e. 5.8250%. Only typing answer Please explain step by step
Suppose the current yield on a one-year zero-coupon bond is 4%, while the yield on a five-year zero-coupon bond is 6%. Neither bond has any risk of default. Suppose you plan to invest for one year. You will earn more over the year by investing in the five-year bond as long as its yield does not rise above what level? (Assume $1 face value bond.) Hint: It is best not to round intermediate calculations-make sure to carry at least four decimal places in intermediate calculations. Note: Assume annual compounding. The yield should not rise above %. (Round to two decimal places.)

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