A bond has a Macaulay duration of 7.50 and is priced to yield 5.5%. If interest rates go up so that the yield goes to 6.0%, what will E percentage change in the price of the bond? Now, if the yield on this bond goes down to 5%, what will be the bond's percentage cha in price? Comment on your findings. If interest rates go up to 6.0%, the percentage change in the price of the bond is%. (Round to two decimal places.) If interest rates go down to 5%, the percentage change in the price of the bond is%. (Round to two decimal places.) Comment on your findings. (Select the best answer below.) OA. As interest rates increase or decrease, the price of the bond will always increase. B. As interest rates increase, the price of the bond decreases. As interest rates decrease, the price of the bond increases.

A bond has a Macaulay duration of 7.50 and is priced to yield 5.5%. If interest rates go up so that the yield goes to 6.0%, what will E percentage change in the price of the bond? Now, if the yield on this bond goes down to 5%, what will be the bond's percentage cha in price? Comment on your findings. If interest rates go up to 6.0%, the percentage change in the price of the bond is%. (Round to two decimal places.) If interest rates go down to 5%, the percentage change in the price of the bond is%. (Round to two decimal places.) Comment on your findings. (Select the best answer below.) OA. As interest rates increase or decrease, the price of the bond will always increase. B. As interest rates increase, the price of the bond decreases. As interest rates decrease, the price of the bond increases.

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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Similar questions

A bond currently sells for 1,200, which gives it a yield to maturity of 8%. Suppose that if the yield increases by 25 basis points, the price of the bond declines to 1,155. Based on this price change, what is the duration of the bond? How do i calculate this?
You are considering two bonds. Bond A has a 9% annual coupon while Bond B has a 6% 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? State your reason for the answer. The price of Bond A will decrease over time, but the price of Bond B will increase over time. The price of Bond B will decrease over time, but the price of Bond A will increase over time. The prices of both bonds will remain unchanged. The prices of both bonds will increase by 7% per year. The prices of both bonds will increase by 9% per year.
A newly issued bond with 1 year to maturity has a price of $1,000, which equals its face value. The coupon rate is 15% and the probability of default in 1 year is 35%. The bond’s payoff in default will be 65% of its face value. a. Calculate the bond’s expected return. b. Use a data table to show the expected return as a function of the recovery percentage and the price of the bond. Please show how you got part B using all functions.
Economic If the current yield of a bond goes down from 6.9% to 4.8%, by what percent does the market price increase? Round your answer to the nearest percent.
If the current yield of a bond goes down from 6.1% to 4.5%, by what percent does the market price increase?
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 that the yield curve shows that the one-year bond yield is 8 percent, the two-year yield is 7 percent, and the three-year yield is 7 percent. Assume that the risk premium on the one-year bond is zero, the risk premium on the two-year bond is 1 percent, and the risk premium on the three-year bond is 2 percent. a. What are the expected one-year interest rates next year and the following year? The expected one-year interest rate next year = The expected one-year interest rate the following year b. If the risk premiums were all zero, as in the expectations hypothesis, what would the slope of the yield curve be? The slope of the yield curve would be (Click to select) % %
Assume that the real risk-free rate is 2% and the average annual expected inflation rate is 4%. The DRP and LP for Bond A are each 2%, and the applicable MRP is 3%. What is Bond A's interest rate?
The rate of return that you would earn if you bought a bond and held It to its maturity date is called the bond's yield to maturity (YTM). If Interest rates in the economy rise after a bond has been issued, what will happen to the bond's price and to Its YTM? Does the length of time to maturity affect the extent to which a given change in interest rates will affect the bond's price? Briefly explain with necessary numerical data.
Consider a bond that has a life of 2 years and pays a coupon of 10% per annum (with semiannual payments); the yield is 5% per annum with semiannual compounding.(a) What is the bond’s price?(b) What is the bond’s duration?(c) Suppose that the bond price is the one you computed in part (a) and that the 6M, 12M, and 18M zero rates are respectively 4.2%, 4.8% and 5.6% per annum. What is the 2Y zero rate assuming all rates are quoted with semiannual compounding?
Other Math If the current yield of a bond goes down from 6.9% to 4.8%, by what percent does the market price increase? Round your answer to the nearest percent.
Using the information from the prior problem, what rate (in %s) do you expect a 5-year bond to have? From Prior: You observe that there is a one-year Treasury bond with a yield of 3.0%. You also assume that rates will increase and that the one-year bond will increase by 1.0% each year. For example, you expect the one-year bond in year 2 will be 4.0% and 5.0% in year 3.

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