Question

Two bonds will mature in 15 years. One pays 8 percent interest and the other is...

Two bonds will mature in 15 years. One pays 8 percent interest and the other is a zero coupon bond. If market interest rate goes up, value of a zero coupon bond (in percent) will _____ than the coupon bond:

a. increase more

b decrease less

c. increase less

d. decrease more

e. none of the above

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

If the market interest rate goes up, the value of any bond decreases. So, eliminate answer choices that say bond value increases. Eliminate options a, and c

For a given change in market interest rates, lower the coupon rate, higher is the price sensitivity and vice versa. So, zero coupon bonds will decrease in value more than the coupon bond.

Option d is correct.

Option b is incorrect because the zero coupon bond is more price sensitive to the market interest rate changes and hence it decreases in value more than tht decrease in value of the coupon bond.

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
Enron bonds mature in 12 years and have a coupon rate of 6.00%. If the market...
Enron bonds mature in 12 years and have a coupon rate of 6.00%. If the market rate of interest increases, then the: A. Coupon rate will also increase. B. Current yield will decrease. C. Yield to maturity will be less than the coupon rate. D. Market price of the bond will decrease.
SHOW YOUR FULL WORK THANKS 1. Consider two bonds, A and B. Both bonds presently are...
SHOW YOUR FULL WORK THANKS 1. Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pays interest of $120 annually. Bond A will mature in five years, while bond B will mature in six years. If the yields to maturity on the two bonds change from 12% to 10%, A. both bonds will increase in value, but bond A will increase more than bond B. B. both bonds will increase in...
ABSA Ltd bonds mature in 8 years and have a yield to maturity of 12.52 percent....
ABSA Ltd bonds mature in 8 years and have a yield to maturity of 12.52 percent. The par value of the bonds is R826. The bonds have a 9.8 percent coupon rate and pay interest on a quarterly basis. Required: 1. Find the current price of the bond. 2. Find the current yield of the bond. 3. Find the capital gains yield or loss.
A company's bonds mature in 8 years, have a face value of $1,000, and make an...
A company's bonds mature in 8 years, have a face value of $1,000, and make an annual coupon interest payment of $30.  The market requires an interest rate of 7% on these bonds. What is the current market price of the bond?
Consider two bonds, A and B. Both bonds presently are selling at their par value of...
Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pays interest of $60 annually. Bond A will mature in eight years, while bond B will mature in ten years. If the yields to maturity on the two bonds change from 7% to 5%, A. both bonds will increase in value, but bond A will increase more than bond B. B. both bonds will decrease in value, but bond B will decrease...
A firm has outstanding bond that mature in 15 years. The bonds have a face value...
A firm has outstanding bond that mature in 15 years. The bonds have a face value of $1000, and a coupon rate of 5.2 percent The bonds make semiannual coupon payments. If the market yield on these bonds is 4.2 percent, what is the current bond price? (Round your answer to 2 decimal places. (e.g., 1032.16))
​(Bond valuation​) ​Hamilton, Inc. bonds have a coupon rate of 15 percent. The interest is paid​...
​(Bond valuation​) ​Hamilton, Inc. bonds have a coupon rate of 15 percent. The interest is paid​ semiannually, and the bonds mature in 15 years. Their par value is ​$1 000. If your required rate of return is 12 ​percent, what is the value of the​ bond? What is the value if the interest is paid​ annually? a. if the interest is paid semiannually, the value of the bond is?
Treasury securities that mature in 8 years currently have an interest rate of 8.0 percent. The...
Treasury securities that mature in 8 years currently have an interest rate of 8.0 percent. The maturity risk premium is estimated to be 0.1%(t - 1), where t is equal to the maturity of the bond (i.e., the maturity risk premium of a 1-year bond is zero). The real risk-free rate is assumed to be constant over time at 2%. For AAA rated 8-year bonds, DRP and LP combine to equal 2.5%. What is the expected rate of inflation (IP)...
(Bond valuation​) ​Hamilton, Inc. bonds have a coupon rate of 15 percent. The interest is paid​...
(Bond valuation​) ​Hamilton, Inc. bonds have a coupon rate of 15 percent. The interest is paid​ semiannually, and the bonds mature in 12 years. Their par value is ​$1,000. If your required rate of return is 11 ​percent, what is the value of the​ bond? What is the value if the interest is paid​ annually? a. If the interest is paid​ semiannually, the value of the bond is ​$___?
cullumber, inc., has outstanding bonds that will mature in six years and pay an 8 percent...
cullumber, inc., has outstanding bonds that will mature in six years and pay an 8 percent coupon semiannually. if you paid $1033.85 today and your required rate of return was 6.6 percent. Wildhorse Corp. management plans to issue seven-year zero coupon bonds. It has learned that these bonds will sell today at a price at a price of $446.16. What is the yield to maturity on these Bonds? (Round answer to 3 decimal places, e.g. 15.251%)
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT