Question

If expected inflation increases, what will happen (other things equal) to the value of a 30...

If expected inflation increases, what will happen (other things equal) to the value of a 30 year US Treasury Bond?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

If the expected inflation increases, the interest rate for the longer term bonds will increase and hence, the value of 30 year US Treasury bond will decrease.

Inflation is one of the important factor that determines the interest rate. If the inflation rate increases, the monetary policy will try and bring down the liquidity by increasing the interest rate.

Now as the interest rate for the future is expected to be higher, the currently traded bonds become less attractive for lower coupon payment, hence, the value of long term bonds will decrease

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Other things being equal, an increase in the U.S. rate of inflation is likely to cause...
Other things being equal, an increase in the U.S. rate of inflation is likely to cause an increase in the (a) international value of the U.S. dollar. (b) quantity of U.S. imports. (c) quantity of U.S. exports. (d) demand for U.S. dollars.
Which of the following is true if, all other things being equal, if the USD rallies...
Which of the following is true if, all other things being equal, if the USD rallies 1% versus the GBP (British pound)? Check all that apply. (There are 2 correct answers) a) The value of BP ADRs will decrease all other things being equal. The value of BP ADRs will decrease all other things being equal. b) US companies that earn a large percentage of their profits in the UK will exceed EPS expectations all other things being equal. c)...
All other things equal (YTM = 10%), which of the following has the longest duration? A....
All other things equal (YTM = 10%), which of the following has the longest duration? A. a 30-year bond with a 10% coupon B. a 20-year bond with a 9% coupon C. a 20-year bond with a 7% coupon D. a 30-year zero-coupon bond
Other things equal, demand-side inflation results in output ____ and the price level ____. A Increasing;...
Other things equal, demand-side inflation results in output ____ and the price level ____. A Increasing; increasing B Increasing; decreasing C Decreasing; increasing D Decreasing; decreasing
Suppose the inflation rate is expected to be 1.1 percent in the U.S. and 1.8 percent...
Suppose the inflation rate is expected to be 1.1 percent in the U.S. and 1.8 percent in South Korea in 2020. a.        If the nominal interest rate on the 10-year U.S. Treasury bond is 2.4 percent, what is the real interest rate on that instrument? b.        If the nominal exchange rate between the U.S. dollar and the South Korean Won is expected to fall by 5 percent by the end of the year, what is the change in...
Which of the following will decrease the present value of an annuity, other things equal? a....
Which of the following will decrease the present value of an annuity, other things equal? a. increasing the discount rate. b. decreasing the discount rate. c. increasing the number of payments.
For each of the following 4 changes (other things equal), has the value of the country's...
For each of the following 4 changes (other things equal), has the value of the country's current account balance increased (become more positive of less negative), decreased (become less positive of more negative) or stayed the same? 1-Net foreign investment of the country increases. A-Stay the same B-Decrease C-None of the above D-Increase 2- Exports of goods and services increases by $10m and imports of goods and services increases by $10m. A-Increases B-Decreases C-Stays the same D-None of the above...
If the value of the US dollar increases relative to other currencies (exchange rate increases), what...
If the value of the US dollar increases relative to other currencies (exchange rate increases), what will be the effect on net exports for the United States?
If a higher inflation is expected, what would you expect to happen to the shape of...
If a higher inflation is expected, what would you expect to happen to the shape of the yield curve as per the pure expectation theory? Why? Draw the diagram and explain.
Assume there is an international crisis. What would you expect to happen the value of the...
Assume there is an international crisis. What would you expect to happen the value of the dollar versus other currencies and what would happen to the yields on 10-year treasury bonds?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT