In a high-inflation economy, a corporate bond provided a nominal HPR of 45% per year. The inflation rate during this period was 38% per year. Calculate the real HPR on the bond.
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- A 10-year government bond has face value of OR 200 and a coupon rate of 6% paid semiannually. Assume that the interest rate is equal to 8% per year. What is the bond’s price? What is the reason for the difference in price on an annual and semiannually basis? Discuss the role of financial managers.need help this question solutionDuring a period of severe inflation, a bond offered a nominal HPR of 80% per year. The inflation rate was 70% per year.a. What was the real HPR on the bond over the year?b. Compare this real HPR to the approximation rreal ≈ rnom − i.
- The outstanding bonds of Winter Tires Inc. provide a real rate of return of 4.2 percent. If the current rate of inflation is 5.8 percent, what is the actual nominal rate of return on these bonds?A 5-year government bond has a face value of £1,000 and an annual nominal couponrate of 8%. Assume that the relevant nominal market interest rate (annualized) is equalto 10%. The coupon payments are made quarterly.(a) Calculate the present value of the bond and the effective market interest rate.A bond par value is $2,000 and the coupon rate is 6 percent. The bond price was $1,946.61 at the beginning of the year and $1,982.79 at the end of the year. The inflation rate for the year was 2.4 percent. What was the bond's real return for the year?
- Suppose a U.S. government bond pays $2,155.40 in 5 years at 6% interest. Calculate the present value of the bond.A Treasury bond that you own at the beginning of the year is worth $1,100. During the year, it pays $48 in interest payments and ends the year valued at $1,110.What was your dollar return and percent return?Suppose Home Depot issues 30-year bonds on which it pays a 4.00% (nominal) interest rate. Further, suppose that both Home Depot and the purchasers of its bonds anticipate inflation will average 2.00% during the life of the loan. Now suppose the inflation rate after the loan is made (i.e. after the bond is purchased) is actually 1.00% per annum. It follows that the actual real rate of interest is and, ceteris paribus, are (is) better off than anticipated as a result of the difference between the anticipated and the actual rate of inflation. Select one: a. 2.00%, Bondholders b. 2.00%, Home Depot O c. 3.00%, Bondholders d. 3.00%, Home Depot
- The real risk-free rate is 3 percent. Inflation is expected to average 2 percent a year for the next 3 years, after which the inflation is expected to average 3.5 percent a year. Assume that there is no maturity risk premium. A 7-year corporate bond has a yield of 7.6 percent. Assume that the liquidity premium on the corporate bond is 0.4 percent. What is the default risk premium on the corporate bond?A company's 5-year bonds are yielding 10% per year. Treasury bonds with the same maturity are yielding 3.9% per year, and the real risk-free rate (r*) is 2.15%. The average inflation premium is 1.35%, and the maturity risk premium is estimated to be 0.1 × (t - 1)%, where t = number of years to maturity. If the liquidity premium is 0.9%, what is the default risk premium on the corporate bonds? Round your answer to two decimal places. %FYI bonds pay $40 in interest every six months and will mature in 10 years. a. Calculate the price if the yield to maturity on the bonds is 7, 8, and 9 percent, respectively. b. Explain the impact on price if the required rate of return decreases.