Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 13, Problem 12E
To determine
Define current yield on a bond. Do interest rate change when
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Check out a sample textbook solutionStudents have asked these similar questions
What does it mean to say that a bond has a value less than one for its relative yield differential? What might account for such a difference?
Raphael observes that at the current level of interest ratesthere is an excess supply of bonds, and therefore he anticipates an increase in the price of bonds. Is Raphael correct?
A bond has a Macaulay duration of
10.00
and is priced to yield
8.0%.
If interest rates go up so that the yield goes to
8.5%,
what will be the percentage change in the price of the bond? Now, if the yield on this bond goes down to
7.5%,
what will be the bond's percentage change in price? Comment on your findings.
If interest rates go up to
8.5%,
the percentage change in the price of the bond is
nothing%.
(Round to two decimal places.)
If interest rates go down to
7.5%,
the percentage change in the price of the bond is
nothing%.
(Round to two decimal places.)
Comment on your findings. (Select the best answer below.)
A.
As interest rates decrease, the price of the bond decreases. As interest rates increase, the price of the bond increases.
B.
As interest rates increase or decrease, the price of the bond will always increase.
C.
As interest rates increase or decrease, the price of the bond remains the same.
D.
As interest rates…
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- Calculate the bond yield rate (%) for a bond with an annual interest payment of $200 and a market price of $9,000.arrow_forwardWhy does longer-term bonds fluctuate more when interest rate change, than does shorter-term bondsarrow_forwardHow do interest rates affect bond yield and bond prices.arrow_forward
- What happens to interest rates in the market when bond prices fluctuate a lotarrow_forwardWhat will happen in the bond market if the government imposes a limit on the amount of daily transactions?Which characteristic of an asset would be affected? How might it affect the interest rates?arrow_forwardConsider a fixed-payment security that pays $500 at the end of every year for ten years. If the rate of discount is 7 percent, find the present value of the bond? Show your work..arrow_forward
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