Say you think interest rates on 10-year bonds will decline by 2%. You have $1 million...

 

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Say you think interest rates on 10-year bonds will decline by 2%. You have $1 million and there are two bonds you can buy: A B Coupon 10% 3% Years to Maturity 10 10 Yield to Maturity 7% 7% Price $1210.71 $719.06 Payment annual annual Assume you can buy fractions of a bond, so you can either put the whole million in bond A or B. Which do you buy, and what will be your profit if interest rates decline by 2% as you expect? Consider the same two bonds below. If we switch the payment frequency from annual to semiannual (there is no change in interest rates), what will happen to the price of each bond? That is, will bond A's price increase, decrease, or stay the same? What about B's price? Can you explain your result? A B Coupon 10% 3% Years to Maturity 10 10 Yield to Maturity 7% 7% Price $1210.71 $719.06 Payment annual annual Say you think interest rates on 10-year bonds will decline by 2%. You have $1 million and there are two bonds you can buy: A B Coupon 10% 3% Years to Maturity 10 10 Yield to Maturity 7% 7% Price $1210.71 $719.06 Payment annual annual Assume you can buy fractions of a bond, so you can either put the whole million in bond A or B. Which do you buy, and what will be your profit if interest rates decline by 2% as you expect? Consider the same two bonds below. If we switch the payment frequency from annual to semiannual (there is no change in interest rates), what will happen to the price of each bond? That is, will bond A's price increase, decrease, or stay the same? What about B's price? Can you explain your result? A B Coupon 10% 3% Years to Maturity 10 10 Yield to Maturity 7% 7% Price $1210.71 $719.06 Payment annual annual

Answer rating: 100% (QA)

Okay lets calculate the answers to the questions 1 Which bond should you buy and what will be your p... View the full answer