Suppose that the market interest rate in an economy is 9 percent and a bond promises to pay $735 after one year, $858 two years from now, and finally $1410 three years from now.The equilibrium market price of this bond$2485.25. (Round your response to two decimal places.)If this bond were to sell for $1988 in the market, then it is profitableto buythis bond from investors' perspectives.not to buy

Suppose that the market interest rate in an economy is 9 percent and a bond promises to pay $735 after one year, $858 two years from now, and finally $1410 three years from now. The equilibrium market price of this bond is $2485.25. (Round your response to two decimal places.) If this bond were to sell for $1988 in the market, then it is profitable to buy this bond from investors' perspectives. not to buy

Suppose that the market interest rate in an economy is 9 percent and a bond promises to pay $735 after one year, $858 two years from now, and finally $1410 three years from now. The equilibrium market price of this bond is $2485.25. (Round your response to two decimal places.) If this bond were to sell for $1988 in the market, then it is profitable to buy this bond from investors' perspectives. not to buy

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Indicate which one of following statements is true for a coupon bond: A) When the price of a bond is above its par value, the yield to maturity is greater than the coupon rate. B) The yield to maturity and the price of a coupon bond are positively related. C) When the price of a coupon bond equals its face value, the yield to maturity equals the coupon rate. D) When the price of a bond is below its par value, the yield to maturity is less than the coupon rate Support your answer with the use of a formula and explain in detail all the assumptions you make and all the components you use. (You may also want to use a yield calculator to verify you answer).
Compute the following: The present value of $25,000 each year for 4 years at a 7 percent interest rate The present value of $152,000 each year for 5 years at a 6 percent interest rate The present value of $60,000 each year for 10 years at a 6.5 percent interest rate
The remarkable thing about the events described in the article is that the yield on the 3-month T-bill was briefly negative. To see how this could happen, consider the relationship between bond prices and bond yields. A 3-month T-bill with a maturity value of $1,000 is just a piece of paper that entitles the holder to $1,000 in three months. For example, if you were to buy a 3-month T-bill on September 24, 2008, with a maturity value of $1,000 and 90 days left to maturity, the U.S. government would pay you $1,000 on December 23, 2008. In general, the price of a bond is less than its maturity value. That is, if you are going to give up a certain amount of money for the duration of the bond, you expect to be paid for this loss of liquidity and compensated for inflation that could reduce the value of the repayment at the end of the period. Therefore, a piece of paper entitling you to $1,000 on December 23 would usually be worth less than $1,000 on September 24. The yield on a bond is a…
Suppose that the interest rate is 5 percent. Enter your answers rounded to 2 decimal places. A. What is the future value of $100 four years from now? $ How much of the future value is total interest? $ b. By how much would total interest be greater at an interest rate of 7 percent than at an interest rate of 5 percent? $
Bond A pays $8,000 in 28 years. Bond B pays $8,000 in 14 years. (To keep things simple, assume these are zero-coupon bonds, which means the $8,000 is the only payment the bondholder receives.) Suppose the interest rate is 5 percent. Using the rule of 70, the value of Bond A is approximately Now suppose the interest rate increases to 10 percent. Using the rule of 70, the value of Bond A is now approximately I The value of a bond rate. and the value of Bond B is approximately and the value of Bond B is approximately Comparing each bond's value at 5 percent versus 10 percent, Bond A's value decreases by a when the interest rate increases, and bonds with a longer time to maturity are percentage than Bond B's value. sensitive to changes in the interest
Which of the following is a true statement? Multiple Choice ___ If interest rates fall, U.S. Treasury bonds will have decreasing values. ___ If interest rates fall, corporate bonds will have decreasing values. ___ If interest rates fall, no bonds will enjoy rising values. ___ If interest rates fall, all bonds will enjoy rising values
QUESTION 7 As a recently hired analyst, you are tasked with evaluating your firm's bond portfolo, The first bond you evaluate has a constant payment of $427 per year and the prospectus claims the present value of the bond is $5,008. What is the Interest rate of the bond in question? Submit your answer in percent to the first decimal place, that is, 2.57% = 2.6 or 2.6%
Suppose the current annual interest rate on a one-year government bond is 8% and the expected annual interest rate on a one-year bond one year from now is 8.5%, and a one- year bond two years from now is 9%. Based on this information, the current annual interest rate on a three-year government bond is approximately, A. 8.0% B. 9.0% 8.5% D. 8.2% 10% ABCDE C. E.
The demand D (in billions of £) for a bond with coupon rate 5% and face value FV = 1000, and two years to maturity as a function of its price P is D = 4000 − 2P. The supply in (billions of £)as a function of the price of the bond is S = 2P + 400. b) Suppose that the yield to maturity of the bond is i = 0.05. What is the quantity demanded/supplied at this interest rate? What happens to the demand/supply of the bond as the interest rate increases? Explain why. c) What is the equilibrium interest rate? d) Suppose that the bond trades at premium. Is there excess demand or supply? Explain. e) There is a business cycle contraction, so both supply and demand shifts. After the shift, the new demand curve is given by: D = 4000 + X − 2P , whereas the new supply curve is S = 2P + 200. For which values of X will the interest increase/decrease? Which values of X are in line with empirical data?
Suppose a new process was developed that could be used to make oil out of seawater. The equipment required is quite expensive, but it would in time lead to low prices for gasoline, electricity, and other types of energy. What effect would this have on interest rates? (Hint: which direction does demand curve shift? How does it change savings and investment in the economy?)
Calculate the future value of $500 four years from now based on the following scenarios. Instructions: Enter your answers rounded to 2 decimal places. a. What is the future value of $500 four years from now if the interest rate is 5 percent? %24 b. Suppose that the interest rate is 7 percent. What is the future value of the payment four years from now?