Question

Which of the following bonds has the highest interest rate risk? All bonds have the same face value and make annual coupon payments.

A. 10-year bonds with 5% coupon rate B. 10-year bonds with 4% coupon rate C. 10-year bonds with 3% coupon rate D. 5-year bonds with 6% coupon rate E. 5-year bonds with 5% coupon rate

The Grand Adventure has a 7-year, 6 percent annual coupon bond
outstanding with a $1,000 par value. The bond has a yield to
maturity of 5.5 percent. Which one of the following statements is
correct if the market yield suddenly increases to 7 percent?

A. The bond price will increase by $57.14.

B. The bond price will increase by 5.29 percent.

C. The bond price will decrease by $53.62.

D. The bond price will decrease by 8 percent.

E. The bond price will decrease by 8.36 percent.

Which one is correct and why?

Answer #1

1. bonds with high maturity period and lower coupon rates affects more by the interest risk.

Option C is correct which have "10-year bonds with 3% coupon rate" high maturity period and lower coupon rate.

2. To find the price of the bond, use PV function in EXCEL

=PV(rate,nper,pmt,fv,type)

rate=yield to maturity =5.5%

nper=7 years

pmt=coupon=coupon rate*face value=6%*1000=60

fv=face value=1000

=PV(5.5%,7,60,1000,0)=$1028.41

If Yield to maturity increases to 7%, then rate=7%

=PV(7%,7,60,1000,0)=$946.11

The price of the bond falls by=$1028.41-$946.11=$82.31

The Percentage of bond price decreases by=$82.31/1028.41=8.0%

Option D is correct

which of the following bonds has the highest price risk or interest
rate risk?
1. a 10 year old 0% coupon bond
2. a 5 year old 0% coupon bond
3. a 10 year 5% coupon bond
4. a 5 year 5% coupon bond

a) You are considering two bonds. Bond A has a 6% annual coupon
while Bond B has a 5% annual coupon. Both bonds have a 7% yield to
maturity, and the YTM is expected to remain constant. Which of the
following statements is CORRECT?
a.
The price of Bond A will decrease over time, but the price of
Bond B will increase over time.
b.
The prices of both bonds will decrease over time, but the price
of Bond A...

Three 10-year, $1,000 par value, noncallable bonds have the same
level of risk. Bond EIGHT has an eight percent annual coupon, Bond
TEN has a ten percent annual coupon, and Bond TWELVE has a twelve
percent annual coupon. Bond TEN sells for $1,000. Assuming that
interest rates remain constant for the next ten years, which of the
following statements is CORRECT?
- Bond EIGHT sells at a discount (its price is less than par),
and its price is expected to...

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...

Which of the following bonds has a price that is less sensitive
to changes in interest rates?
Group of answer choices
A 11-year bond with face value of $100, coupon rate of 10%,
annual coupon payments, and yield to maturity of 3.00% (APR).
A 11-year bond with face value of $100, coupon rate of 15%,
annual coupon payments, and yield to maturity of 3.00% (APR).
A 11-year bond with face value of $100, coupon rate of 0%,
annual coupon payments,...

2) A stock has an expected return of 10.2 percent, the risk-free
rate is 3.9 percent, and the expected return on the market is 11.10
percent.
What must the beta of this stock be? (5 points)
Is it more or less risky than average? (5 points)
Explain what is that the beta coefficient measures. (5
points)
3) A company currently has a cost of equity of 17.8 percent. The
market risk premium is 10.2 percent and the risk-free rate is...

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 bondâ€™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...

Calculate the fair present values of the following bonds, all of
which pay interest semiannually, have a face value of,$1000, have 5
years remaining to maturity, and have a required rate of return of
10 percent
the bond has a 6 percent coupon rate.
the bond has a 8 percent coupon rate.
the bond has a 10 percent coupon rate.
what do your answers to parts (a) through (c) say about the
relation between coupon rates and present values

1. Which of the following bonds has the highest interest rate
risk (all else equal)? a. 2.5%, 5-years to maturity b. 0% Coupon,
30-years to maturity c. 0%, 5-years to maturity d. 2.5% Coupon,
30-years to maturity?
2.
A 10-year Treasury Note is an example of:
a.
An interest only loan
b.
A pure discount loan
c.
An amortized loan
d.
None of the above

show all works
1. The real risk-free rate of interest is 1%. Inflation is
expected to be 4% the next 2 years and 7% during the next 3 years
after that. Assume that the maturity risk premium is zero. What is
the yield on 3-year Treasury securities? (5 points)
2. The real risk-free rate of interest is 2.5%. Inflation is
expected to be 2% the next 2 years and 4% during the next 3 years
after that. Assume that the...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 7 minutes ago

asked 8 minutes ago

asked 8 minutes ago

asked 23 minutes ago

asked 29 minutes ago

asked 31 minutes ago

asked 37 minutes ago

asked 39 minutes ago

asked 58 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago