None Consider the following.a. What is the duration of a two-year bond that pays an annual coupon of 12 percent and whose current yield to maturity is 14 percent?Use $1,000 as the face value. (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))b. What is the expected change in the price of the bond if interest rates are expected to decrease by 0.4 percent? (Negative amountshould be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))Answer is not complete.a.Duration of bond1.899b.Expected change in the price

a) Statement showing duration of bondYearInterestRepayment of principalTotalPVIF @ 14%Present…

Answered: Consider the following. a. What is the…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider the following. a. What is the duration of a two-year bond that pays an annual coupon of 12 percent and whose current yield to maturity is 14 percent? Use $1,000 as the face value. (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) b. What is the expected change in the price of the bond if interest rates are expected to decrease by 0.4 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Answer is complete but not entirely correct. a. Duration of bond 1.899 b. Expected change in the price $ 7.32x
Assume that the real risk-free rate is 1% and that the maturity risk premium is zero. If a 1-year Treasury bond yield is 6% and a 2-year Treasury bond yields 7%, what is the 1-year interest rate that is expected for Year 2? Calculate this yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places. What inflation rate is expected during Year 2? Do not round intermediate calculations. Round your answer to two decimal places.
a. What is the duration of a two-year bond that pays an annual coupon of 11.5 percent and has a current yield to maturity of 13.5 percent? Use $1,000 as the face value. (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616)) b. What is the duration of a two-year zero-coupon bond that is yielding 11.5 percent? Use $1,000 as the face value. a. Duration b. Duration years years
a. What is the duration of a two-year bond that pays an annual coupon of 11.5 percent and has a current yield to maturity of 13.5 percent? Use $1,000 as the face value. (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616))b. What is the duration of a two-year zero-coupon bond that is yielding 11.5 percent? Use $1,000 as the face value.
7) By how much will the price of a 30-year zero-coupon bond change if, due to a permanent change in interest rates, the price of a 3-year zero-coupon bond decreased by 4%? Assume the short- and long-term interest rates are the same. If your answer depends on other parameters not given in this question (e.g., current interest rate, bond prices, etc.) write your answer as a function of these parameters and specify what these parameters are.
Assume that the real risk-free rate is 2.4% and that the maturity risk premium is zero. If a 1-year Treasury bond yield is 5.6% and a 2-year Treasury bond yields 6.3%. Calculate the yield using a geometric average. What is the 1-year interest rate that is expected for Year 2? Do not round intermediate calculations. Round your answer to two decimal places. % What inflation rate is expected during Year 2? Do not round intermediate calculations. Round your answer to two decimal places. % Comment on why the average interest rate during the 2-year period differs from the 1-year interest rate expected for Year 2. The difference is due to the inflation rate reflected in the two interest rates. The inflation rate reflected in the interest rate on any security is the average rate of inflation expected over the security's life. The difference is due to the real risk-free rate reflected in the two interest rates. The real risk-free rate reflected in the interest rate on any security is the…
Suppose the current interest rate on a one-year bond is 2% and the current interest rate on a two-year bond is 4%. The term premium on a two-year bond is 1%. According to the expectations hypothesis, what interest rate should we expect on a one-year bond next year? Answer as a percentage to one decimal place and do not include symbols (e.g. $, %, commas) in your answer. Answer:
Suppose that y is the yield on a perpetual government bond that pays interest at the rate of $1 per annum. Assume that y is expressed with simply com- pounding, that interest is paid annually on the bond, and that y follows the process dy = a(y0 −y)dt + oydWt, where a, y0, and o are positive constants and dWt is a Wiener process. (a) What is the process followed by the bond price? (b) What is the expected instantaneous return (including interest and capital gains) to the holder of the bond?
Assume that the real risk-free rate is 1.9% and that the maturity risk premium is zero. If a 1-year Treasury bond yield is 5.6% and a 2-year Treasury bond yields 6.3%. Calculate the yield using a geometric average. What is the 1-year interest rate that is expected for Year 2? Do not round intermediate calculations. Round your answer to two decimal places. % What inflation rate is expected during Year 2? Do not round intermediate calculations. Round your answer to two decimal places. % Comment on why the average interest rate during the 2-year period differs from the 1-year interest rate expected for Year 2. The difference is due to the fact that the maturity risk premium is zero. The difference is due to the fact that we are dealing with very short-term bonds. For longer term bonds, you would not expect an interest rate differential. The difference is due to the fact that there is no liquidity risk premium. The difference is due to the inflation rate reflected in the two interest…
Suppose 2-year Treasury bonds yield 4.1%,while 1-year bonds yield 3.2%. r* is 1%, and the maturity risk premium is zero.a. Using the expectations theory, what is the yield on a 1-year bond, 1 year from now?Calculate the yield using a geometric average.b. What is the expected inflation rate in Year 1? Year 2?
Suppose the interest rate on a 1-year T-bond is 6.3 % and that on a 3 year T-bond is 7.3 %. Assuming the pure expectations theory is correct, what is the market's forecast for 2-year rates 1 year from now? Enter your answer as a percentage and do not use the % symbol.
Consider a semi-annual bond that has a par value of 100, a 15-year maturity, a 5% coupon rate. Monthly interest rate is 0.412%. (a) What is the price of the bond (without calculation)? And explain why you can determine the price of the bond without calculation? (b) Using answers from (a), calculate the modified duration of this bond. (c) Using answers from (a) and (b), suppose that the bond’s yield to maturity decreases to 3.5%. How much will the bond price increase by applying the duration rule?

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