Bond A has a yield of 5%. Bond B has a yield of 7%. Both bonds have a coupon rate of 6.5%. Which bond has the higher price? (All else equal.) Select one: a. A b. both bonds will sell for $1000 c. not enough information d. B
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Bond A has a yield of 5%. Bond B has a yield of 7%. Both bonds have a coupon rate of 6.5%. Which bond has the higher price? (All else equal.)
A
both bonds will sell for $1000
not enough information
B
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- Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for 1,135.90, producing a nominal yield to maturity of 8%. However, the bond can be called after 5 years for a price of 1,050. (1) What is the bonds nominal yield to call (YTC)? (2) If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?Bond A has a 9% annual coupon, while Bond B has a 7% annual coupon. Both bonds have the same maturity, a face value of $1,000, an 8% yield to maturity, and are noncallable. Which of the following statements is CORRECT? a. If the yield to maturity for both bonds remains at 8%, Bond A's price one year from now will be higher than it is today, but Bond B's price one year from now will be lower than it is today. b. Bond A trades at a discount, whereas Bond B trades at a premium. c. Bond A's current yield is greater than that of Bond B. d. Bond A's capital gains yield is greater than Bond B's capital gains yield. e. If the yield to maturity for both bonds immediately decreases to 6%, Bond A's bond will have a larger percentage increase in value.Bond X has a 10% annual coupon, while Bond Y has a 8% annual coupon. Both bonds have the same maturity, a face value of $1,000, an 9% yield to maturity, and are noncallable. Which of the following statements is CORRECT? options: a) Bond X's capital gains yield is greater than Bond Y's capital gains yield. b) Bond X trades at a discount, whereas Bond Y trades at a premium. c) If the yield to maturity for both bonds immediately decreases to 7%, Bond X's bond will have a larger percentage increase in value. d) Bond X's current yield is greater than that of Bond Y. e) If the yield to maturity for both bonds remains at 9%, Bond X's price one year from now will be higher than it is today, but Bond Y's price one year from now will be lower than it is today.
- Bond A is a premium bond with a 9 percent coupon. Bond B is a 5 percent coupon bond currently selling at a discount. Both bonds make annual payments, have a YTM of 6 percent, and have five years to maturity. The face value is $1000 for both bonds. a. Why is the capital gain yield of the premium bond different from that of the discount bond? Which bond is better in terms of yields? b. What is the holding period return for each bond, if both bonds are held over the next year and sold at the year ned?First, it is known that two bonds have the same redemption value and coupon rate and are priced at the same yield rate. The first bond has a tenor of 4 years, while the second bond has a tenor of 10 years. The market yield rate then falls by 1% such that the prices of the first and second bonds change by D1% and D₂%, respectively, from their initial prices. Determine the relationship between D1 and D₂ Notes: |x| is the absolute value of x. a. D1 and D2 have negative signs and |D1|>|D2|.b. D1 and D2 have a positive sign and |D1|>|D2|.c. D1 and D2 have positive signs and |D1|<|D2|.d. D1 and D2 have different signs and |D1|>|D2|.e. D1 and D2 have different signs and |D1|<|D2|you hold a bond with three years to maturity and a yield to maturity of 10% . If the maturity of the bond decreases to 8%, the duration rule predicts that the price of the bond will increase by 4.9736%. which of the following statement can be true a) The actual price increase is 4.8681% the actual price increase is 5.0235% b) The actual price increase is 5.0235% c) The bond is selling at par d) The bond is a zero-coupon bond e) None of these is possible.
- A Treasury bond has an annual coupon of 8% and a 7.5 percent interest to maturity. Which of the comments below is the most accurate?a. The bond already has a yield of more than 8%.b. The bond is sold for more than its face value.c. If the yield to maturity is stable, the bond's price should decrease with time.d. Both b and c are valid statements.e. All of the above claims are true.Explain what you see from the pricing calculations. How do the two bonds differ? Bond C Bond Price = PV(rate,nper,pmt,fv) Given: n = Period which takes values from 0 to the nth period = 0,1,2,3 & 4 Cn = Coupon payment in the nth period = 10%*$1,000 = $100 YTM = interest rate or required yield = 9.6% P = Par Value of the bond = $1,000 Bond Z Bond Price = PV(rate,nper,pmt,fv) Given: n = Period which takes values from 0 to the nth period = 0,1,2,3 & 4 Cn = Coupon payment in the nth period = 0%*$1,000 = $0.00 YTM = interest rate or required yield = 9.6% P = Par Value of the bond = $1,000 years Bond A Bond Z 4 $1,012.79 $693.04 3 $1,010.02 $759.57 2 $1,006.98 $832.49 1 $1,003.65 $912.41 0 $1,000.00 $1,000.00Lantech investor is deciding between two bonds: Bond A pay $72 annual interest and has a market value of $925. It has 10 years to maturity. Bond B pays $62 annual interest and has a market value of $910. It has two years to maturity. Par value of the bonds is $1,000. A. What is the current yield on both bonds? B. Which bond should be chosen and why? C. A drawback of current yield is that is doesn't consider the total life of the bond. E.g. Yield to maturity on Bond A is 8.33 percent. What is the yield to maturity on Bond B? D. Is your answer changed from parts B and C based on which bond should be chosen?
- Suppose the market interest rate is 5%. Valuate the following bonds. (i) a 3-year discount bond with a face value of £100,000 (ii) a 3-year coupon bond with a face value of £98,000 and a coupon rate of 5% (iii) Given the different face values of the two, explain the difference between your answers to part i and ii.Consider the following two-bond portfolio of option-free bonds; Bond A Bond B Years to maturity 5 years 10 years Coupon rate 5% 5% Par value 1000 1000 Yield to maturity 8% 6% Par amount owned R3,45 million R2 million Market value R30 367.59 (in 000’s) R18 528 (in 000’s) Required: Without doing any calculations, which bond would have a higher duration Assuming that Bond A is an option-free bond, calculate the bond’s modified duration using Macauly’s Duration. Assume that the duration of Bond A and B is 4.2 and 7.5 respectively; determine the duration of the portfolioConsider the following two-bond portfolio of option-free bonds; Bond A Bond B Years to maturity 5 years 10 years Coupon rate 5% 5% Par value 1000 1000 Yield to maturity 8% 6% Par amount owned R3,45 million R2 million Market value R30 367.59 (in 000’s) R18 528 (in 000’s) Required: a) Without doing any calculations, which bond would have a higher duration b) Assuming that Bond A is an option-free bond, calculate the bond’s modified duration using Macauly’s Duration. c) Assume that the duration of Bond A and B is 4.2 and 7.5 respectively; determine the duration of the portfolio. Requires: Macauly's Duration Modified Duration Weight Bond A Weight Bond B Portfolio Duration