The table below shows current and expected future one-year interest rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond.One-Year BondYearMultiyear Bond RateRate12.00%2.00%23.00%3.00%36.00%4.00%48.00%5.00%10.00%7.00%The liquidity premiums for each year are given as: (Enter your responses rounded to two decimal places.)11= 00 %121= 0.50 %31 =40.33 %41 =%%3D151%3D

The additional return being expected by the investors for instruments that are not tradable readily…

Answered: The table below shows current and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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1) If a $2,000 one-year bond pays $170 in annual interest, the interest rate on this bond is (do NOT use decimal)? 2) If the interest rate changes to 19.5%, the bond price will be? 3) If the interest rate changes to 16.5%, bond price will be?
Find readings or videos on the internet with information on the factors that move the demand and supply curves of bonds, their effect on interest rates. Answer the following questions: 1. One way the Fed decreases the money supply is by selling bonds to the public. Using supply and demand analysis for bonds, show what effect this action has on interest rates. 2. Using the supply and demand of bonds, show why interest rates are pro-cyclical (they increase when the economy is expanding and decrease during recession). 3. What effect can a sudden increase in gold price volatility have on interest rates? 4. Using a supply and demand analysis for bonds, show the effect on interest rates when the risk of the bond increases.
Find the spot rate for a theoretical 2 year zero coupon bond using the following information: 6 month T-bill rate = .5% 1 year T-Bill rate = .75% 1.5-year T-Note rate = 1.10% 2-year T-Note rate = 1.65%
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…
A bond with a face value of $1,000 has 8 years until maturity, has a coupon rate of 8%, and sells for $1,100. What is the yield to maturity if interest is paid once a year? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places. What is the yield to maturity if interest is paid semiannually? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places.
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
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Below you will find the Demand and Supply Curves for $250,000 bonds that mature in 18 years: Qd = 400,000 – 2(P) Qs = 3(P) – 100,000 If the Fed wants to move the interest rate to 5%, what would the bond price have to change to in order to achieve this?
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?

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