Eric owns a corporate bond with a coupon rato of 8% that matures in 10 years Rosa owns a corporate bond with a coupon rate of 12% that matures in 25 years. If interest rates go down, thenOn the value of Eric's bond will decrease and the value of Rosa's bond will increaseOs the value of both bonds will increaseOc the value of Rosa's bond will decrease more than the value of Eric's bond due to the longer time to mauntyOo the value of both bonds will remain the same because they were both purchased in an earlier time period before the interest rate changed

Bond's price and interest rate are inversely related. If the market interest goes up, the price of…

Enc owns a corporate bond with a coupon rate of 8% that matures in 10 years Rosa owns a corporale bond with a coupon rate of 12% that matures in 25 years If interest rates go down then OA the value of Enc's bond will decrease and the value of Rosa's bond will incense Os the value of both bonds will increase Octhe value of Rosa's bond will decrease more than the value of Ene's bond due to the longer time to malunty Oo the value of both bonds will reman the same because they were both purchased in an earter time period before the interest rate changed

Enc owns a corporate bond with a coupon rate of 8% that matures in 10 years Rosa owns a corporale bond with a coupon rate of 12% that matures in 25 years If interest rates go down then OA the value of Enc's bond will decrease and the value of Rosa's bond will incense Os the value of both bonds will increase Octhe value of Rosa's bond will decrease more than the value of Ene's bond due to the longer time to malunty Oo the value of both bonds will reman the same because they were both purchased in an earter time period before the interest rate changed

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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Similar questions

Carl buys a 7-year, $10,000 par value, 7% coupon bond. Exactly 4 years after purchasing the bond, he needs cash so he wants to sell the bond. If due to changes in the interest rate environment, the same bond would today only have a 6% coupon, what would be the fair price of the bond?
Mike buys a corporate bond with a face value of $1000 for $800. The bond matures in 10 years and pays a coupon interest rate of 5%. Interest is paid every quarter. (a) Determine the effective rate of return if Mike holds the bond to maturity. (b) What effective interest rate will Mike get if he keeps the bond for only 5 years and sells it for $900?
2
Adam buys a three-year bond with a $1000 face value and a 10% coupon rate for $1000 today. If one year later the market interest rate increases by 5% and Adam sells the bond, then his rate of return on this investment is ______% (round to one decimal place, negative if it is a loss)
John buys the following Bond: Coupon = 8.0%, paid ANNUALLY (once per year) Face Value = $1,000 Purchase Price = $1,000 Maturity = 5-years John plans on reinvesting all the coupon payments. If interest rates fall to 5.0% right after John purchases the bond, what is the realized return on John's investment if John holds the bond until it matures?
Two years ago Sam bought a newly issued three- year US government bond (a risk-free asset) with a principle of $1000 and a 5% coupon rate. This year, one year before maturity, Sam decides to sell the bond and sees that the price people are willing to pay for his bond is now $1019. Has the interest rate gone up or down since Sam purchased the bond? Options are up and down What is the the current interest rate for bonds when Sam decides to sell? Options are 2-8%,.
Rosina purchased one 15-year bond at par value when it was initially issued. This bond has a coupon rate of 7 percent and matures 13 years from now the current market rate for this type and quality of bond is 7.5 percent, then Rosina should expect: Multiple Choice the bond issuer to increase the amount of all future interest payments. the yield to maturity to remain constant due to the fixed coupon rate. to realize a capital loss if she sold the bond at today's market price. today's market price to exceed the face value of the bond. the current yield today to be less than 7 percent.
Susan can buy a zero-coupon bond that will pay 1,000 at the end of 12 years and is currently selling for 624.60. Instead, she purchases a bond with 6% semi-annual coupons that will pay 1,000 at the end of 10 years. If she pays X for this bond she will earn the same annual effective interest rate as the zero-coupon bond. Calculate X.
If the owners choose to invest in bonds instead, they look at a $57,750.00 bond set to mature in 6 years with a bond rate of 2.4%, payable semi-annually. The market rate is 4.5%, compounded semi-annually. The owners will only purchase the bond if they can afford it with their savings $52500.00, and they can get the bond at a discount because they think the market rate will go down, potentially making the bond more valuable in the future. 8. If the bond rate is {2.4%}, will the bond be sold at a premium or a discount? Explain your answer. 9. Calculate the purchase price of the bond if it is purchased today (6 years before maturity). 10. Do the owners have enough money to buy their bond? Will they make the purchase?
If the owners choose to invest in bonds instead, they look at a $136,125 bond set to mature in 9 years with a bond rate of 2%, payable semi-annually. The market rate is 5.40%, compounded semi-annually. The owners will only purchase the bond if they can afford it with their savings $123,750, and they can get the bond at a discount because they think the market rate will go down, potentially making the bond more valuable in the future. 1. If the bond rate is 2%, will the bond be sold at a premium or a discount? Explain your answer.
Seven years ago, a semi-annual coupon bond with a 10% coupon rate, $1,000 face value and 15 years to maturity was issued by Corn Inc. Teddy bought this bond two years ago when the market interest rate was 12%. And now the market interest rate is 5%. If teddy sells the bond now, what is Teddy’s capital gain/loss yield on the bond investment? Find the initial purchase price and selling price, then determine the yield.
If the owners choose to invest in bonds instead, they look at a $136,125.00 bond set to mature in 9 years with a bond rate of 2.00%, payable semi-annually. The market rate is 5.40%, compounded semi-annually. The owners will only purchase the bond if they can afford it with their savings ($123,750.00), and they can get the bond at a discount because they think the market rate will go down, potentially making the bond more valuable in the future. 2. Calculate the purchase price of the bond if it is purchased today (9 years before maturity). 3. Do the owners have enough money to buy their bond? Will they make the purchase?

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