Bundle: Essentials Of Economics, 8th + Mindtap Economics, 1 Term (6 Months) Printed Access Card
8th Edition
ISBN: 9781337378833
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 19, Problem 3PA
Subpart (a)
To determine
Calculating the value of bonds.
Subpart (b)
To determine
Calculating the value of bonds.
Subpart (c)
To determine
To determine: Value of bonds.
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Erin buys a bond that pays no coupon payments for $160. When the bond matures, she receives $200.
Erin earned an interest rate of ____________ percent on this bond.
(Enter your answer "as a percent, but without the percentage sign." If you think Erin earned 99.99 percent interest, enter only 99.99 in the blank.)
2
Consider a bond with a three-year remaining maturity.
A. If somehow the face value of the coupon is $10,000 and the annual payment is $500. If the yield to maturity is 6%, what would the price of this bond be?
b. Considering your response to question (a), is the coupon rate higher, lower, or the same as the yield to maturity? Why?
Chapter 19 Solutions
Bundle: Essentials Of Economics, 8th + Mindtap Economics, 1 Term (6 Months) Printed Access Card
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Similar questions
- Why are bonds somewhat risky to buy, even though they make predetermined payments based on a fixed rate of interest?arrow_forward4arrow_forwardSuppose a bond pays annual interest of $50. Compute the interest rate per year that a bondholder can earn for each face value in the following table. Face Value Interest Rate per Year (Dollars) 200 500 1,000 (Percentage) If the annual interest paid stays the same and the face value of the bond goes up, then the interest rate paid for the bond per yeararrow_forward
- If the interest rate is 20 percent, what is the present value of a bond that matures in two years, pays $85 one year from now, and pays $1,085 two years from now? The present value of the bond is $ (Enter your response rounded to the nearest cent.)arrow_forwardSuppose that you purchase a 2 year coupon bond at the time it is issued for $1100. The face value of the bond is $1000, with annual coupon payments of $80. a. What is the bond’s “coupon rate”? b. What is the bond’s “current yield”? c. What is the bond’s (nominal) “yield to maturity”? d. If you hold the bond for 1 year and sell it for $1035 (after collecting the first coupon payment), what is your “holding period rate of return”? Please answer all part otherwise Dounvotearrow_forwardA bond that has a face value of $300 maturing in one year is available for purchase for $252 . What is the interest rate offered on the bond (rounded to the nearest whole percent), and if the price of the bond were to increase, how would the interest rate be affected?arrow_forward
- Suppose a bond makes $150 coupon payments at the end of the next two years, at which time the face value of $1,000 is repaid. If the interest rate is 8 percent, then what is the present value of the bond? The present value (PV) of the bond is $1124.83. (Enter your response rounded to two decimal places.)arrow_forwardcan you solve it with formulas?please make your text readable.arrow_forwardConsider that you were given a US savings bond that will pay $100 when it matures in ten years. What happens if the interest rate rises to the present value of this bond payment?Why happens if the interest rate rises to the present value of this bond payment? A. Increases in present value B. The current value is unaffected. C. A decrease in present valuearrow_forward
- Assume that a bond has a face value of $250,000. It has a maturity of 1 year and the coupon rate of interest is 5%. If the current market price of this bond is $225,000, what is the yield to maturity? If the market price of the bond increases to $240,000, what happens to the yield to maturity?arrow_forwardBond A pays $8,000 in 20 years. Bond B pays $8,000in 40 years. (To keep things simple, assume that theseare zero-coupon bonds, meaning the $8,000 is theonly payment the bondholder receives.)a. If the interest rate is 3.5 percent, what is the valueof each bond today? Which bond is worth more?Why? (Hint: You can use a calculator, but the ruleof 70 should make the calculation easy.)b. If the interest rate increases to 7 percent, what isthe value of each bond? Which bond has a largerpercentage change in value?c. Based on the example above, complete the twoblanks in this sentence: “The value of a bond[rises/falls] when the interest rate increases,and bonds with a longer time to maturity are[more/less] sensitive to changes in the interestrate.”arrow_forward1) Assuming that the current interest rate is 3 percent, compute the present value of a 5-year, 5 percent coupon bond with a face value of $1000. What happens when the interest rate goes to 4 percent? 2). Which of these $100 face value one-year bonds will have the highest yield to maturity and why? a. A 6 percent coupon bond selling for $85. b. A 7 percent coupon bond selling for $100.arrow_forward
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