Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
7th Edition
ISBN: 9780134472669
Author: Blanchard
Publisher: PEARSON
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Question
Chapter 4, Problem 3QAP
a.
To determine
To find:the bond that promises to pay $100 in one year if interest on bond is currently priced $75, $85, $95.
b.
To determine
To find: relationship between the price of the bond and interest rate.
c.
To determine
To find:when the interest rate is 8%, then what could be the price of the bond for today.
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Students have asked these similar questions
If the price of a government bond (gilt) traded on the stock market rises above its nominal value, which of the following statement must be true?
1 -The bond's coupon falls below the yield
2 - The bond's coupon rises above the yield
3-the bond's yield rises above the coupon
4 - the bond's yield falls below the coupon
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…
discuss the relationship between the coupon rate, the market rate of interest and the price of bond?
Chapter 4 Solutions
Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
Knowledge Booster
Similar questions
- Consider 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_forwardYou are considering purchasing a 10-year bond and follow the theory of rational expectations. If you have justread the annual report of the central bank in your country that states interest rates are higher than expected,will you buy the bond today or in the next month?arrow_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_forward
- The price of a bond with no expiration date is originally $1,000 and has a fixed annual interest payment of $150. If the price of the bond then falls by $200, what will be the interest rate yield to a new buyer of the bond? Multiple Choice 10 percent 15 percent 9.4 percent 12.5 percent 18.8 percentarrow_forwardYou hold a two-period bond that pays a coupon at the end of each period. The interest rate is expected to be for each of these periods. What is the price of the bond today?arrow_forward
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