Determine the market price of the bonds at issue based on an appropriate model. Based on the yield-to-maturity today, assess whether the price has changed and proceed to determine its market price today. Compare the results in (a) and (b) above and interpret the sensitivity of bond prices to maturity and yield to maturity.
Monetary Policy and Interest Rate
Monetary policy refers to the policy which is enforced by the central bank of the country to control the money supply and economic development of the country. The main aim of monetary policy is to manage inflation, consumption, and growth of the economy. The central bank influences interest rates to manage the money supply. In monetary policy, the central bank may revise the interest rate to increase and decrease the flow of money.
Development of the US Monetary System
The monetary system of a country refers to the system in which a government provides money in the economy of the country. In the modern-day monetary system, usually it contains the National Treasury, the mint where the notes are being printed. The Central bank and the commercial banks regulate the money supply in the economy of a country.
The
The reduction in the OPR is intended to provide a more accommodative monetary environment to support the projected improvement in
Two years ago, Malayawata Steel issued RM 100 million worth of ten-year bonds with a face value of RM1,000.00 and a coupon rate of 5%. Coupon payments are made semi-annually. Two years ago, the market yield-to-maturity was 3% pa.
Due to the increased insecurity facing the industry, the market yield to maturity is now 7% p.a.
- Determine the market price of the bonds at issue based on an appropriate model.
- Based on the yield-to-maturity today, assess whether the price has changed and proceed to determine its market price today.
- Compare the results in (a) and (b) above and interpret the sensitivity of
bond prices to maturity and yield to maturity.
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