EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 23, Problem 8CP
a.
Summary Introduction
To compute: The percentage change in the price of 10-year U.S. Treasury assuming a 50-basis-point change in the yield on the 10 year U.S. Treasury.
Introduction:
Basis point: It is supposed to the 1/100th of a percent or a value which is equal to 1/1000th. The values related to fixed income markets are denoted in terms of basis points.
b.
Summary Introduction
To compute: The percentage change in the price of K.C. bond using the regression equation. Assuming a 50-basis-point change in the yield on the 10 year U.S. Treasury.
Introduction:
Regression equation: A regression equation depicts the dependent relationship of two or more relationships. By using this equation, one can compute the extent of dependence between two variables.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
YIELD CURVES
Assume that yields on U.S. Treasury securities were as follows:
Term Rate
6 months 4.69%
1 year 5.492 years 5.663 years 5.71
4 years 5.89
5 years 6.05
10 years 6.12
20 years 6.64
30 years 6.76
Plot a yield curve based on these data.
What type of yield curve is shown?
Whatinformationdoesthisgraphtellyou?
Based on this yield curve, if you needed to borrow money for longer than 1 year,
would it make sense for you to borrow short term and renew the loan or borrow long term? Explain.
Assume that yields on U.S. Treasury securities were as follows:Term Rate6 months 4.69%1 year 5.492 years 5.663 years 5.714 years 5.895 years 6.0510 years 6.1220 years 6.6430 years 6.76
a. Plot a yield curve based on these data.b. What type of yield curve is shown?c. What information does this graph tell you?d. Based on this yield curve, if you needed to borrow money for longer than 1 year,would it make sense for you to borrow short term and renew the loan or borrow longterm? Explain.
Suppose that y is the yield on a perpetual
government bond that pays interest at the
rate of $1 per annum. Assume that y is
expressed with simply com- pounding, that
interest is paid annually on the bond, and
that y follows the process dy = a(y0 −y)dt +
oydWt, where a, y0, and o are positive
constants and dWt is a Wiener process.
(a) What is the process followed by the
bond price?
(b) What is the expected instantaneous
return (including interest and capital gains)
to the holder of the bond?
Chapter 23 Solutions
EBK INVESTMENTS
Ch. 23 - Prob. 1PSCh. 23 - Prob. 2PSCh. 23 - Prob. 3PSCh. 23 - Prob. 4PSCh. 23 - Prob. 5PSCh. 23 - Prob. 6PSCh. 23 - Prob. 7PSCh. 23 - Prob. 8PSCh. 23 - Prob. 9PSCh. 23 - Prob. 10PS
Ch. 23 - Prob. 11PSCh. 23 - Prob. 12PSCh. 23 - Prob. 13PSCh. 23 - Prob. 14PSCh. 23 - Prob. 15PSCh. 23 - Prob. 16PSCh. 23 - Prob. 17PSCh. 23 - Prob. 18PSCh. 23 - Prob. 19PSCh. 23 - Prob. 20PSCh. 23 - Prob. 21PSCh. 23 - Prob. 22PSCh. 23 - Prob. 23PSCh. 23 - Prob. 24PSCh. 23 - Prob. 25PSCh. 23 - Prob. 26PSCh. 23 - Prob. 1CPCh. 23 - Prob. 2CPCh. 23 - Prob. 3CPCh. 23 - Prob. 4CPCh. 23 - Prob. 5CPCh. 23 - Prob. 6CPCh. 23 - Prob. 7CPCh. 23 - Prob. 8CP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Can you explain the working for the Bond Yield (Annual). If I were to work it outside of Excel, how would I calculate it to get to "8.30%"arrow_forwardThe risk-free rate on long-term Treasury bonds is 6.04%. Assume thatthe market risk premium is 5%. What is the required return on the market? Now use the SML equation to calculate the two companies’ requiredreturns.arrow_forwardAnswer briefly the following questions:a) Write the formula of the Price-Earnings ratio and explain how a result of 11 should be interpreted.b) Write the equation for the PV of 200.000₺ to be received two years later when the market interest rate isforecast as 17%.c) Define the yield to maturity of a 4-year maturity bond whose face value will be repaid at the end of thematurity.d) Define the intrinsic value of a 2-year maturity bond whose face value will be repaid in equal installments.arrow_forward
- Answer briefly the following questions:a) Write the formula of the Price-Earnings ratio and explain how a result of 11 should be interpreted.b) Write the equation for the PV of 200.000₺ to be received two years later when the market interest rate isforecast as 17%.c) Define the yield to maturity of a 4-year maturity bond whose face value will be repaid at the end of thematurity.d) Define the intrinsic value of a 2-year maturity bond whose face value will be repaid in equal installments.arrow_forwardthe following table represents the yield to maturity for 12 year t bonds and corporate bonds with different ratings what most likely accounts for differences in yields? T-Bond: 2.42% AAA Corporate Bond: 3.42% A Corporate Bond: 4.24% BBB Corporate Bond: 4.78% Differences in expected inflation. Tax effects of corporate bonds. Differences in the real and nominal risk-free rate. ODefault risk and liquidity risk. Maturity risk and liquidity risk.arrow_forwardGiven the following Treasury bond yield information, construct a graph of the yieldcurve.arrow_forward
- The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of the face value): Maturity (years) Price (per $100 face value) 1 $96.32 a. Compute the yield to maturity for each bond. b. Plot the zero-coupon yield curve (for the first five years). c. Is the yield curve upward sloping, downward sloping, or flat? a. Compute the yield to maturity for each bond. The yield on the 1-year bond is %. (Round to two decimal places.) 2 $91.93 3 $87.36 4 5 $82.57 $77.42arrow_forwardConsider the following information relating to the following three assets: Asset C, the 10 year government bond rate (which can be used as a proxy for the risk-free rate of return) and the ASX 200 index (which can be used as a proxy for the market portfolio). Asset C: Standard deviation of returns (p.a.) 0.35, Expected return (p.a.) ? 10-year gov't bond: Standard deviation of returns (p.a.) 0, Expected return (p.a.) 0.03 ASX200 Index: Standard deviation of returns (p.a.) 0.15, Expected return (p.a.) 0.10 Correlation between Asset C and the 10-year government bond: 0 Correlation between Asset C and the ASX200 Index: 0.65 Correlation between the ASX200 Index and the 10-year government bond: 0 (a) What is the beta of Asset C? (to 2 decimal places) (b) According to the CAPM what is the expected return of Asset C? (express as a percentage figure to 2 decimal places e.g. 50.04%) (c) According to the CAPM what is the beta and expected return of a portfolio consisting of a 50% investment in…arrow_forwardUsing the table below, Compute the convexity measure (in years) for bond 2 Bond 1 Bond 2 Coupon Yield to maturity Maturity (in years) Par value 6% 7% 6% 6% 4 $100 $100 $100 $108 Price O A. 14.763 12.652 OC. 13.312 OD. 13.927arrow_forward
- Please answer the following question: The modified duration and convexity of a 6%, 25 year bond selling toyield 9% is 10.62 and 91.46 respectively. If the required yield increasesby 300 basis points from 9% to 12% what is the approximate percentagechange in the price of the bond due toa) duration,b) convexity,c) duration and convexity?d) If the actual change is -26.50%, compare your results from a) and c)which provides a better approximation?arrow_forwardA company's 5-year bonds are yielding 8.35% per year. Treasury bonds with the same maturity are yielding 7.15% per year, and the real risk-free rate (r*) is 2.90%. The average inflation premium is 3.85%, and the maturity risk premium is estimated to be 0.1 x (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.arrow_forwardKeys Corporation's 5-year bonds yield 6.50%, and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the liquidity premium for Keys' bonds is LP = 0.5% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1)*0.1%, where t = number of years to maturity. Answer the following questions: A. What is the inflation premium (IP) for 5-year bonds? B. What is the default risk premium (DRP) on Keys' bonds? Do not provided hand written solutionarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
The U.S. Treasury Markets Explained | Office Hours with Gary Gensler; Author: U.S. Securities and Exchange Commission;https://www.youtube.com/watch?v=uKXZSzY2ZbA;License: Standard Youtube License