If we anticipate an increase of the interest rate in the next 6 months, we should buy bonds of which: a) The coupon rate is high and maturity is close. b) The coupon rate is low and maturity is close. c) The coupon rate is high and maturity is far. d) The coupon rate is low and maturity is far.

If we anticipate an increase of the interest rate in the next 6 months, we should buy bonds of which: a) The coupon rate is high and maturity is close. b) The coupon rate is low and maturity is close. c) The coupon rate is high and maturity is far. d) The coupon rate is low and maturity is far.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 5Q: What do you have to do to the interest rate and years of maturity if a bond pricing problem tells...

See similar textbooks

Related questions

Q: Assuming that the expectations theory is the correct theory of the term structure, calculate the…

A: The expectations theory states that over the same period, the overall interest rate of small-term…

Q: Suppose you bought a five-year zero-coupon Treasury bond for $800 per $1000 face value. Assuming…

A: Data given for zero coupon bond: FV= $1000 P=$ 800 Yield on comparable bond= 7% Holding period…

Q: Two bonds A and B have the same credit rating, the same par value and the same coupon rate. Bond A…

A: Hello. Since your question has multiple sub-parts, we will solve first three sub-parts for you. If…

Q: The yield on a 5-year Treasury bond must exceed that on a 2-year Treasury bond.

A: Treasury bond refers to the securities that should be paid at a fixed rate of interest every six…

Q: Consider a bond with a coupon rate of 8% and a yield to maturity of 5%, will this bond sell for…

A: Current Market price of the bond is calculated using Financial Calculator Assuming, Face value of…

Q: Two bonds A and B have the same credit rating, the same par value and the same coupon rate. Bond A…

A: Bonds are valued keeping in consideration various factors; interest rate risk, maturity, coupon…

Q: A firm sells bonds with a par value of 1000 Rupees, carry a 8% coupon rate, with a maturity period…

A: Bond value is the present worth of a cash flow at a certain rate of interest and time period it will…

Q: You are considering purchasing a bond between settlement periods with a 6% coupon rate and 4…

A: A bond is a type of financial asset in which the issuer owes the holder a debt and is required to…

Q: One of the above is the most accurate statement? a. In general, distant cash flows are riskier than…

A: Non-callable bond: It is the bond that is only redeemed at the time of maturity.

Q: Suppose you bought a five-year zero-coupon Treasury bond for $800 per $1000 face value. Suppose…

A: Holding Period Return is the total return on an investment generated including the dividend or…

Q: Which of the following is correct? If you pay a price above its face value to buy a bond, your…

A: From debt investors expect a fixed income from investment made. Example is interest. Debt includes…

Q: What is the volatility of your return over this period?

A: Information Provided: Duration = 12 years Yield on bond = 10% Volatility of yield = 0.2%

Q: Which of the following statements is CORRECT? a. The shorter the time to maturity, the greater the…

A: Bond Maturity is the future specific date at which the face value of the bond is repaid to the…

Q: Two bonds A and B have the same credit rating, the same par value and the same coupon rate. Bond A…

A: Bond prices and interest rates are inversely related to each other. This is explained in step 2. The…

Q: Assuming the expectations theory is the correct theoryof the term structure, calculate the interest…

A: Interest rate is the rate which is the due proportion of amount borrowed, or lent for specified…

Q: p of answer choices A. The price of a zero-coupon bond with four years until expiry is going to be…

A: Price of bond depends the yield to maturity and time to maturity.

Q: You are employed by an investment bank to estimate the value of a coupon-paying bond with the…

A: Solution:- Market value of the bond = Present value of coupon amounts receivable from bond at yield…

Q: Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have $1,000…

A: Calculate PV of Bonds as below: Resultant Table: Hence, PV of Bond A and B are showed in above…

Q: (a) You hold a consol that pays a coupon C in perpetuity. The current interest rate is i, and the…

A: (a). Perpetual bonds, also known Consol bonds, with no maturity date and pays coupon forever. The…

Q: An investor has two bonds in their portfolio paying the same coupon rate, one with 3 years until…

A: Bond Bonds are debts instruments that are issued by entities to raise funds and meet their capital…

Q: d. If your tax bracket is 30% on ordinary income and 21.4% on capital gains income, what will be the…

A: Zero coupon bonds do not pay interest during the bond period. Zero coupon bonds are issued at a very…

Q: 1. Consider two bonds with a similar credit rating and pay the same coupon rate per annum. The terms…

A: We use the equation of time value of money to discount back the future cash flows of a bond to…

Q: Suppose you purchase a 30-year Treasury bond with a 6% annual coupon, initially trading at par. In…

A: The calculation and explanation provided in excel sheet in step 2 and formulas is explained in step…

Q: The yield curve currently observed in the market is as follows: y1 = 7%, Y2 = 8%, and y3 = 9%. You…

A: The selection of bonds will be based on net gain received from the bonds after 1 year. Net gain will…

Q: uppose that 6 months after you purchase the bond, the market rate for interest on this type of bond…

A: Bond valuation according to financial management is done by discounting all the expected future cash…

Q: A Treasury bond has an annual coupon of 8% and a 7.5 percent interest to maturity. Which of the…

A: Please find the answer to the above question below:

Q: A firm has issued bonds with a remaining maturity of 1 year, face value of $100 and an annual coupon…

A: Bond default refers to the situation when issuer of a bond is unable to repay the bond amount which…

Q: ear U.S. treasury bond that pays a coupon of 10 in one year from now and a coupon and principal of…

A: The given problem can be solved using PV function in excel. PV function computes current price for…

Q: Suppose today you buy a coupon bond that you plan to sell one year later. Which of the rate of…

Q: suppose you purchase a 30-year Treasury bond with a 5% annual coupon, initially trading at par. In…

A: Given:

Q: With different terms to maturity but the same risk, liquidity, and tax considerations is known as A.…

A: Yield curve meaning - It is a curve that plots interest of securities (i.e., bond) having equal…

Q: You are an investment manager evaluating two corporate bonds, each with a maturity value of…

A: Value of the bond is the present value of the future payments at a given rate of return for…

Q: Prices of low coupon bonds are more sensitive to interest rate changes than prices of high coupon…

A: Prices of low coupon bonds are more sensitive to interest rate changes because They carry low coupon…

Q: For an investor who plans to purchase a bond that matures in one year, the primary concern should be…

A: Bonds are source of investment, where the investor gets the fixed coupon payment through out the…

Q: Two bonds, A and B, have the same credit rating, the same par value, and the same coupon rate. Bond…

A: Hi, there, Thanks for posting the question. As per our Q&A honour code, we must answer the first…

Q: Assume a bond with 5% coupon has a current market price of $974, a duration of 13.5 years, and…

A: The bond price is a function of interest rates. When the interest rate decline, the bond price…

Q: bonds, A and B, have the same credit rating, the same par value, and the same coupon rate. Bond A…

A: Bonds carry interest rate and fixed income.

Q: Now suppose a financial institution has a duration gap of -4 years and $5 million in assets. The…

A: Bond's market value has a negative relationship with market interest rates. When interest rate…

Question

If we anticipate an increase of the interest rate in the next 6 months, we should buy bonds of which:

a) The coupon rate is high and maturity is close.

b) The coupon rate is low and maturity is close.

c) The coupon rate is high and maturity is far.

d) The coupon rate is low and maturity is far.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

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?
What do you have to do to the interest rate and years of maturity if a bond pricing problem tells you that interest is compounded quarterly?
Suppose that a bond makes annual coupon payments at a 7% coupon rate, has 10 years until maturity, and is currently trading at 95. If the yield to maturity on the bond remains unchanged over the next year, what will be the total holding period return on the bond over the period? It should come out to 7.74% but I seem to be doing something wrong, thanks!
Suppose that your firm issued a bond with 10 years until maturity, a face value of $1000, and a coupon rate of 7% (annual payments). The yield to maturity on this bond when it was issued was 6%. a) What is the holding period return for investors immediately BEFORE the first coupon payment? Now, Assume that this bond DOES NOT pay any coupon b) What was its price when it was issued?
Two bonds, A and B, have the same credit rating, the same par value, and the same coupon rate. Bond A has 30 years to maturity and bond B has 5 years to maturity. Please demonstrate your understanding of interest rate risk by answering the following questions : As a bond investor, if you expect a slowdown in the economy over the next 12 months, what would be your investment strategy?
Suppose that your firm issued a bond with 10 years until maturity, a face value of $1000, and a coupon rate of 7% (annual payments). The yield to maturity on this bond when it was issued was 6%. a) What was the price of this bond when it was issued? b) Assuming the yield to maturity remains constant, what is the price of the bond immediately BEFORE it makes its first coupon payment? c) . Assuming the yield to maturity remains constant, what is the price of the bond immediately AFTER it makes its first coupon payment?
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.
....ramdev.... Suppose that a bond makes annual coupon payments at a 7% coupon rate, has 10 years until maturity, and is currently trading at 95. If the yield to maturity on the bond remains unchanged over the next year, what will be the total holding period return on the bond over the period? It should come out to 7.74% but I seem to be doing something wrong, thanks!
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.
A newly issued bond has a maturity of 10 years and pays a 7% coupon rate (with coupon payments coming once annually). The bond sells at par value. (i) What are the convexity and the duration of the bond? (ii) Find the actual price of the bond assuming that its yield to maturity immediately increase from 7% to 8% (with maturity still 10 years). (iii) What price would be predicted by the duration rule? What is the percentage error of that rule? (iv) What price would be predicted by the duration-with-convexity rule? What is the percentage error of that rule?
The bond J is a bond with a coupon rate of 4%. The bond K is a bond with a coupon rate of 10%. Both bonds have a maturity of 8 years, make semi - annual payments, and have a yield to maturity of 9%. If interest rates suddenly increase by 2%, what is the percentage change in the price of these bonds? And if the rates suddenly decrease by 2%? What does this problem teach you about the interest rate risk of low - coupon bonds?
A 20-year bond has a coupon rate of 8 percent, and another bond of the same maturity has a coupon rate of 15 percent. If the bonds are alike in all other respects, which will have the greater relative market price decline if interest rates increase sharply? Why?