Question

**True or false:**

- If interest rates fall by 1%, a 10-year, 3% coupon bond will increase in percentage of price less than an otherwise equivalent zero-coupon bond.

- The term structure of interest rates defines the relation between bond maturity and bond yield to maturity.

- Nominal interest rates tend to increase when the economy expands.

- A pension fund would probably prefer a municipal security with a yield of 2.5% to an equivalent corporate bond with a yield of 3%.

Answer #1

1)let us take an example and work out

face value=1000 ytm=3% coupon=3% time=10 years

price of bond=1000

equivalent zero coupon bond price=1000/(1+3%)^10=744.09

now the YTM is reduced by 1% so it is 2%

use pv formuale in excel to find price of bond

coupon bond=pv(2%,10,(3%*1000),1000,0)=1089.93

zero coupon bond=pv(2%,10,(0%*1000),1000,0)=820.35

% change in coupon=(1089.93/1000)-1=8.98%

% change in zero coupon=(820.35/744.09)-1=10.25%

True

2)True and it is the definition

3)True as economy expands inflation also increases and nominal
interest rate also increases

Nominal interest=Real interest+inflation

4)False since for pension fund there is no taxes so they will prefer higher yield funds only

A 10-year corporate bond has a coupon rate of 6% with annual
payments. If interest rates rise to 7% on similar bonds then what
is the value of the bond in the marketplace?
A 10-year corporate bond has a coupon rate of 6% with annual
payments. If interest rates rise to 5% on similar bonds then what
is the value of the bond in the marketplace?
A 10-year corporate bond has a coupon rate of 6% with
semi-annual payments. If...

1. A increase in the tax rate causes ______ in the interest rate
on tax exempt bonds, such as municipal bonds.
A. increase
B. Decrease
C. No change
2.Suppose your marginal income tax rate is 20%.If a corporate
bond pays
15%,then the interest rate that an otherwise identical
municipal bond have to pay in order for you to be indifferent
between holding the corporate bond and the municipal bond is
_____ %.
(Round your response to the nearest whole number)....

1. A 100-year corporate bond has a coupon rate of
9% with semi-annual payments. If the current value
of the bond in the marketplace is $400, then what is the
Yield-to-Maturity (YTM)?
2. How much do you pay for a zero coupon government bond that
has a term of 30 years, an interest rate of 9%,
and a par value of $1000.
3. A taxable bond has a yield of 9% and a
municipal bond has a yield of 4.6%....

1.A 12-year bond has a 9 percent annual coupon, a yield to
maturity of
11.4 percent, and a face value of $1,000. What is the price of the
bond?
2.You just purchased a $1,000 par value, 9-year, 7 percent
annual coupon bond that pays interest on a semiannual basis. The
bond sells for $920. What is the bond’s nominal yield to
maturity?
a. 7.28%
b. 8.28%
c. 9.60%
d. 8.67%
e. 4.13%
f. None of
the above
3.A bond with...

1) What is the coupon rate of a nine year, $10,000 bond with
semiannual coupons and a price of $8,666.52, if it has a yield to
maturity of 7%?
2) A $1,000 bond with a coupon rate of6.1 % paid semiannually
has nine years to maturity and a yield to maturity of 7.5 %. If
interest rates rise and the yield to maturity increases to 7.8 %,
what will happen to the price of the bond?
A) rise by $18.04...

a) First, consider a 10 year bond with a coupon rate of 7% and
annual coupon payments. Draw a graph showing the relationship
between the price and the interest on this bond. The price should
be on the y- axis and the interest rate on the x-axis. To compute
the various prices, consider interest rates between 2% and 12% (use
0.5% increments). So your x-axis should go from 2%, then 2.5% ...
until 11.5% and then 12%.
Is the relationship...

Mary buys a 10 year bond with $10,000 face value, semiannual
nominal bond rate 3%, and semiannual nominal yield rate 4%. She
wants to reinvest the semiannual coupons (immediately after each
coupon is received) into a fund so that her non time valued net
profit at maturity (A.V. of coupons + face value at maturity − bond
price) is $5,000. Find the interest rate (as a semiannual nominal
rate) that the account must earn for this to occur.

A 10-year corporate bond has a coupon rate of
9% with quarterly payments. If interest rates rise
to 8% on similar bonds, then what is the value of the bond in the
marketplace?

a
20 year, 8% coupon rate, $1,000 par bond that pays interest
semi-annually bought five years ago for $850. this bond is
currently sold for 950. what is the yield on this bond?
a.12.23%
b.11.75%
c.12.13%
d.11.23%
an increase in interest rates will lead to an increase in the
value of outstanding bonds.
a. true
b. false
a bond will sell ____ when coupon rate is less than yield to
maturity, ______ when coupon rate exceeds yield to maturity, and...

Consider two bonds, a 3-year bond paying an annual coupon of 3%,
and a 20-year bond, also with an annual coupon of 3%. Both bonds
currently sell at par value. Now suppose that interest rates rise
and the yield to maturity of the two bonds increases to 6%.
a. What is the new price of the 3-year bond?
(Round your answer to 2 decimal places.)
b. What is the new price of the 20-year bond?
(Round your answer to 2...

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