Question: The current rate of inflation is 3 percent and long term
The current rate of inflation is 3 percent, and long-term Treasury bonds are yielding 7 percent. You estimate that the rate of inflation will increase to 6 percent. What do you expect to happen to long-term bond yields? Compute the effect of this estimated change in inflation on the price of a 15-year, 10 percent coupon bond with a current yield to maturity of 8 percent.
Answer to relevant QuestionsSome observers contend that it is harder to estimate the effect of a change in interest rates on common stocks than on bonds. Discuss this contention.It is estimated that next year hourly wage rates will increase by 7 percent and productivity will increase by 5 percent. What would you expect to happen to unit labor cost? Discuss how this unit labor cost estimate would ...Given the three EPS estimates in Problem 6, you are also given the following estimates related to the market earnings multiple:a. Based on the three EPS and P/E estimates, compute the high, low, and consensus intrinsic ...Discuss at what stage in the industrial life cycle you would like to discover an industry. Justify your decision.Under what conditions would you use a two-or three-stage cash flow model rather than the constant-growth model?
Post your question