Question

Assume you buy a bond with the following features Bond maturity = 4 Coupon Rate = 4% Face Value = $1,000 Annual Coupons When you buy the bond the market interest rate = 4.22% Immediately after you buy the bond the interest rate changes to 7.98% What is the "reinvestment" effect in year 3 ?

Answer #1

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1.
Assume you buy a bond with the following features
Bond maturity = 4
Coupon Rate = 5%
Face Value = $1,000
Annual Coupons
When you buy the bond the market interest rate = 4.50%
Immediately after you buy the bond the interest rate changes to
6.71%
What is the "reinvestment" effect in year 3 ?
2.
Bond E has the following
features:
Face value =
$1,000, Coupon Rate =
10%,
Maturity = 5 years, Yearly coupons
...

1.
What is the price of a bond with the following features?
Face Value = $1,000
Coupon Rate = 7% (stated as an ANNUAL rate)
Semiannual coupon payments
Maturity = 7 years
YTM = 6.34% (Stated as an APR)
State your answer to the nearest penny (e.g., 984.25)
2.
Assume you buy a bond with the following features
Bond maturity = 4
Coupon Rate = 5%
Face Value = $1,000
Annual Coupons
When you buy the bond the market interest rate...

A.
Bond Features
Maturity (years) =
10
Face Value =
$1,000
Starting Interest Rate
4.98%
Coupon Rate =
4%
Coupon dates (Annual)
If interest rates change from 4.98% to 6.58% immediately after
you buy the bond today (and stay at the new interest rate), what is
the price effect in year 3 ?
State your answer to the nearest penny (e.g., 48.45)
If there is a loss, state your answer with a negative sign
(e.g., -52.30)
B.
Bond Features
Maturity...

A.
You own a bond with the following features:
Face value of $1000, Coupon rate of 5% (annual) 8 years to
maturity. The bond is callable after 4 years with the call price of
$1,058.
If the market interest rate is 4.17% in 4 years when the bond
can be called, if the firm calls the bond, how much will it save or
lose by calling the bond? State your answer to the nearest penny
(e.g., 84.25). If there...

Use the bond term's below to answer the question
Maturity 6 years
Coupon Rate 3%
Face value $1,000
Annual Coupons
When you buy the bond the interest rate is 4%
Right after you buy the bond, the interest rate changes from
4.00% to 2.75% and remains there.
What is the price effect in year 5 ?

Bond Features
Maturity (years) =
8
Face Value =
$1,000
Starting Interest Rate
4.23%
Coupon Rate =
4%
Coupon dates (Annual)
If interest rates change from 4.23% to 5.02% immediately after
you buy the bond today (and stay at the new interest rate), what is
the price effect in year 4 ?
State your answer to the nearest penny (e.g., 48.45)
If there is a loss, state your answer with a negative sign
(e.g., -52.30)

Bond Features
Maturity (years) =
8
Face Value =
$1,000
Starting Interest Rate
4.32%
Coupon Rate =
4%
Coupon dates (Annual)
If interest rates change from 4.32% to 6.72% immediately after
you buy the bond today (and stay at the new interest rate), what is
the price effect in year 4 ?
State your answer to the nearest penny (e.g., 48.45)
If there is a loss, state your answer with a negative sign
(e.g., -52.30)

Bond Features
Maturity (years) =
8
Face Value =
$1,000
Starting Interest Rate
4.23%
Coupon Rate =
4%
Coupon dates (Annual)
If interest rates change from 4.23% to 5.02% immediately after
you buy the bond today (and stay at the new interest rate), what is
the price effect in year 4 ?
State your answer to the nearest penny (e.g., 48.45)
If there is a loss, state your answer with a negative sign
(e.g., -52.30)

Bond Features
Maturity (years) =
6
Face Value =
$1,000
Starting Interest Rate
4.86%
Coupon Rate =
4%
Coupon dates (Annual)
If interest rates change from 4.86% to 5.66% immediately after
you buy the bond today (and stay at the new interest rate), what is
the price effect in year 4 ?
State your answer to the nearest penny (e.g., 48.45)
If there is a loss, state your answer with a negative sign
(e.g., -52.30)

Bond Features
Maturity (years) =
8
Face Value =
$1,000
Starting Interest Rate
4.23%
Coupon Rate =
4%
Coupon dates (Annual)
If interest rates change from 4.23% to 5.02% immediately after
you buy the bond today (and stay at the new interest rate), what is
the price effect in year 4 ?
State your answer to the nearest penny (e.g., 48.45)
If there is a loss, state your answer with a negative sign
(e.g., -52.30)

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