PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 11, Problem 1RQ
To determine
Explain money.
Expert Solution & Answer
Explanation of Solution
According to the trend, the principal amount of bond is $1,000, and the maturity period is 1 year, where if the current one-year interest rate is equal to the coupon rate in the financial market, then Person A will receive $1,000 for the bond. For instance, suppose the coupon rate and the current one-year rate both are 5% that is 50(5% of 1,000), then, the bond holder will receive total $1,050
If the coupon rate is greater than the current year interest rate, then the
Economics Concept Introduction
Bond: A bond is a written and signed legal promise to repay a certain sum of money on a certain date.
Coupon rate: The coupon rate is the interest rate promised when a bond is issued.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Please do your own work, don't copy from the internet
Q3)
(For the first 20 bond problems, assume interest payments are on an annual basis.)
Bond value (LO10-3) The Lone Star Company has $1,000 par value bonds outstanding at 10 percent interest. The bonds will mature in 20 years. Compute the current price of the bonds if the present yield to maturity is
6 percent.
9 percent.
31. An analyst is considering the purchase of a Government of Canada bond that will pay its face value of $10 000 in one year's time, but pay no direct interest. The market interest rate is 4% and the bond is being offered for sale at a price of $9400. The analyst should recommend
purchasing the bond because the purchase price is more than its present value and is therefore profitable.
not purchasing the bond because the buyer could earn an additional $376 by investing the $9400 elsewhere.
not purchasing the bond because the purchase price is less than its present value.
purchasing the bond because the purchase price is less than its present value and is therefore profitable.
not purchasing the bond because the buyer could earn an additional $224 by investing the $9400 elsewhere.
Suppose a bond makes $150 coupon payments at the end of the next two years, at which time the face value of $1,000 is repaid. If the interest rate is 8 percent, then what is the present value of the bond?
The present value (PV) of the bond is $1124.83. (Enter your response rounded to two decimal places.)
Chapter 11 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
Knowledge Booster
Similar questions
- ECONOMICSarrow_forward12. Treasury Bills (LO1, CFA2) A Treasury bill purchased in December 2016 has 55 days until maturity and a bank discount yield of 2.48 percent. What is the price of the bill as a percentage of face value? What is the bond equivalent yield?arrow_forwardConsider a US Treasury bill with one-year maturity and face value of $1,000 that sells for $900 today. Using this information, determine the yield to maturity for this discount bond. Yield to maturity (in percent, two decimal places) = Recall, interest rates on discount bonds are often quoted in terms of yield on a discount basis. For the sake of comparison, also determine the yield on a discount basis for this bond. Yield on a discount basis (in percent, two decimal places) =arrow_forward
- A zero-coupon bond is a bond that is sold for less than its face value (that is, it is discounted) and has no periodic interest payments. Instead, the bond is redeemed for its face value at maturity. Thus, in this sense, interest is paid at maturity. Suppose that a zero-coupon bond sells for $8,500 and can be redeemed in 20-years for its face value of $38,000. What is the annual compound rate of return? Annual compound rate = % (Round to two decimal places as needed.)arrow_forward11. Two years ago, you bought a fifteen- year bond at its par value of P1,000. The coupon rate on this bond is 9% payable annually. Today (just after receiving the second annual coupon payment), the current yield on the bond is 7.5%. What is the value of the bond today?arrow_forwardQuestion 6 Suppose you are interested in buying a one-year 1,000 dirham bond. You have two options available in the bond market: Option 1 - Emirates Airline bond that pays a coupon rate of 4.75% per year paid annually. Option 2 - Emaar bond that pays a coupon rate of 6.0% per year paid annually. If you decide to buy the Emirates Airline bond, which of the prices below will give you a return approximately equal to the Emaar bond? O a. 956.9 dirhams Ob.973.2 dirhams O. 995.2 dirhams Od. 988.2 dirhamsarrow_forward
- Last year you purchased a bond with an interest rate of 5 percent. Now the interest rate on the bond market drops to 4%. Then the face value of your bond is lower. people can offer a lower price to buy your bond today. the interest rate you are earning from this bond is lower. you will receive the same amount of coupon payments from the issuer while you are holding the bond. your return on this bond will be higher later when you hold it to the maturity date.arrow_forwardQUESTION 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%arrow_forwardMf4. As an employee in the Lottery Commission, your job is to design a new prize. Your idea is to create two grand prize choices: (1) receiving $50,000 at the end of each year beginning in one year for 20 consecutive years, or (2) receiving $500,000 today followed by a one-time payment at the end of 20 years. Using an interest rate of 4%, which of the following comes closest to the amount prize (2) needs to pay at the end of year 20 in order that both prizes to have the same present value? a. $ 114,932 b. $ 235,712 c. $ 393,342 d. $ 440,463 e. $ 326,649arrow_forward
- Consider a bond without an expiration date that makes a fixed interest payment of $210 per year. Complete the following table by calculating the interest rate on the bond at different sale prices. (Hint: The effective interest rate on a bond is a ratio of the interest payment to the sale price of the bond times 100.) Price of Bond Interest Rate (Dollars) (Percent) 1,200 1,000 750 600 Use the blue points (circle symbol) and the preceding table to plot the relationship between bond prices and interest rates on the following graph. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. The line showing the relationship between bond prices and interest rates has a _____(POSITIVE/NEGATIVE) slope; in other words, there is _______(INVERSE / A DIRECT) relationship between bond prices and interest rates. NOTE- THIS QUESTION IS DIVIDED INTO SUBPARTS . PLEASE ANSWER…arrow_forwardCalculate the bond yield rate (%) for a bond with an annual interest payment of $200 and a market price of $9,000.arrow_forwardAndover Bank and Lowell Bank each sell one-year certificates of deposit (CDs). The interest rates on these CDs are given in the table below for a three-year period. Bank Andover Bank Lowell Bank 2020 2% 5% Suppose you deposit $2,000 in a CD in each bank at the beginning of 2020. At the end of 2020, you take your $2,000 and any interest earned and invest it in a CD for the following year. You do this again at the end of 2021. At the end of 2022, the interest over this three-year period at Andover Bank is $ 2021 2% 5% 2022 11% 5% (Enter your response rounded to the nearest penny.)arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Microeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506893Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Microeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506893
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning