If the interest rates on all bonds rise from 5 to 10 percent over the course of the year and stay at the higherlevel, which bond would you preferred to have been holding?A bond with a thirty year maturity.A bond with a five year maturity.A bond with one year to maturity.A bond with a ten year maturity.7-12 B

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Answered: If the interest rates on all bonds rise…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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What is the yield to maturity on a bond that has a price of $1,600 and pays $100 interest annually for 6 years at the end of which it repays the principal of $1000? Is the bond selling at premium, at par, or at discount? How can you tell?
For a one year bond of $2,300 at a simple interest rate of 10% per year, find the semiannual interest payment and the total interest earned over the life of the bond. The semiannual interest on the bond is s (Simplify your answer. Type an integer or a decimal. Round to the nearest cent as needed.) The total interest on the bond is $. (Simplify your answer. Type an integer or a decimal. Round to the nearest cent as needed.)
Assume that a 5-year bond pays interest of $110 once a year (1 payment/year) and will mature for $1,000. Also assume that the yield to maturity on this bond is currently 12 percent. Given this information, determine the duration of this bond. Enter your answer in decimal format, truncated to 2 decimal places. For example, if your answer is 7.1186 years, enter "7.11".
You own a bond that pays $100 in annual interest, with a $1,000 par value. It matures in 15years. The market's required yield to maturity on a comparable-risk bond is 11 percent. a. Calculate the value of the bond. b. How does the value change if the yield to maturity on a comparable-risk bond (i) increases to 16 percent or (ii) decreases to 6 percent? c. Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds. d. Assume that the bond matures in 5 years instead of 15 years and recalculate your answers in parts a and b. e. Explain the implications of your answers in part d as they relate to interest-rate risk, premium bonds, and discount bonds.
Bond A has the following terms: Coupon rate of interest (paid annually): 12 percent Principal: $1,000 Term to maturity: Ten years Bond B has the following terms: Coupon rate of interest (paid annually): 6 percent Principal: $1,000 Term to maturity: Ten years What should be the price of each bond if interest rate is 12 percent? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar.Price of bond A: $ Price of bond B: $ What will be the price of each bond if, after four years have elapsed, interest rate is 12 percent? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar.Price of bond A: $ Price of bond B: $ What will be the price of each bond if, after ten years have elapsed, interest rate is 9 percent? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar.Price of bond A: $ Price of bond B: $
A $1,000 bond has a coupon of 4 percent and matures after tên years. ASsume that the bond pays interest annually. a. What would be the bond's price if comparable debt yields 6 percent? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $ b. What would be the price if comparable debt yields 6 percent and the bond matures after five years? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. c. Why are the prices different in a and b? The price of the bond in a is -Select- v than the price of the bond in b as the principal payment of the bond in a is -Select- v than the principal payment of the bond in b (in time). d. What are the current yields and the yields to maturity in a and b? Round your answers to two decimal places. The bond matures after ten years: CY: % YTM: % The bond matures after five years: CY: YTM:
Assume that a 5-year bond pays interest of $90 once a year (1 payment / year) and will mature for $1,000. Also assume that the yield to maturity on this bond is currently 10 percent. Given this information, determine the duration of this bond. Enter your answer in decimal format, truncated to 2 decimal places. For example, if your answer is 7.1186 years, enter "7.11".
The current 1-year, 2-year, and 3 year bond interest rates are 4%, 5%, and 6%, respectively. The expectations theory of the term structure predicts that the expected 1-year bond interest rate is ___% next year and _____% the year after.
Bond A has the following terms: Coupon rate of interest (paid annually): 12 percent Principal: $1,000 Term to maturity: Ten years Bond B has the following terms: Coupon rate of interest (paid annually): 6 percent Principal: $1,000 Term to maturity: Ten years What should be the price of each bond if interest rate is 12 percent? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar.Price of bond A: $ Price of bond B: $ What will be the price of each bond if, after three years have elapsed, interest rate is 12 percent? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar.Price of bond A: $ Price of bond B: $ What will be the price of each bond if, after ten years have elapsed, interest rate is 9 percent? Use Appendix B and Appendix D to answer the question. Round your answers to the nearest dollar.Price of bond A: $ Price of bond B: $
Find the Macaulay duration and the modified duration of a 15-year, 7.5% corporate bond priced to yield 5.5%. According to the modified duration of this bond, how much of a price change would this bond incur if market yields rose to 6.5%? Using annual compounding, calculate the price of this bond in one year if rates do rise to 6.5%. How does this price change compare to that predicted by the modified duration? Explain the difference.
Consider a bond with a duration of 8.8 years priced at $1,100. If market interest rates were to increase by 0.25%, what would be the predicted new bond price according to duration?
6. Suppose that you invest in a 10-year, semi-annual coupon, $1,000 par value bond when it is first issued. The coupon rate and yield to maturity are equal both 8 percent. Immediately after purchase, the annual yield to maturity for the bond falls to 7 percent. First calculate then use duration to determine the percentage gain (loss) on the sale of the bond.

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If the interest rates on all bonds rise from 5 to 10 percent over the course of the year and stay at the higher level, which bond would you preferred to have been holding? A bond with a thirty year maturity. A bond with a five year maturity. A bond with one year to maturity.