A 10-year bond is issued with a face value of $1,000, paying interest of $60 a...

  

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A 10-year bond is issued with a face value of $1,000, paying interest of $60 a year. If interest rates increase shortly after the bond is issued answer the following with short written answer. a. What happens to the bond's coupon rate? b. What happens to the bond's price? c. What happens to the bond's yield to maturity? 2. In November 2017, Treasury offers a 4 3/4s of semiannually compounded yield to maturity of 2.6% (Matures 2041). Recognizing that coupons are paid semiannually, calculate the bond's price. Assume face value is $1,000. 3. A 10-year U.S. Treasury bond with a face value of $1,000 pays a coupon of 5.5% (2.75% of face value every six months). The reported yield to maturity is 5.2% (a six-month discount rate of 5.2/2 = 2.6%). a. What is the present value of the bond? b. If the yield to maturity changes to 1%, what will be the present value? c. If the yield to maturity changes to 8%, what will be the present value? d. If the yield to maturity changes to 15%, what will be the present value? 4. If a bond's yield to maturity does not change, the return on the bond each year will be equal to the yield to maturity. Confirm this for both a 1 premium and a discount bond using a 4-year 3 percent coupon bond with annual coupon payments and a face value of $1,000. a. Assume the yield to maturity is 2 percent, what is the bond price today, what is the bond price in one year, and what is the rate of return? b. Assume the yield to maturity is 4 percent, what is the bond price today, what is the bond price in one year, and what is the rate of return? 6. A government bond matures in 6 years, makes annual coupon payments of 5% and offers a yield of 3% annually compounded. Assume face value is $1,000. a. Suppose that one year later the bond still yields 3%. What return has the bondholder earned over the 12-month period? b. b. Now suppose that the bond yields 2% at the end of the year. What return did the bondholder earn in this case? A 10-year bond is issued with a face value of $1,000, paying interest of $60 a year. If interest rates increase shortly after the bond is issued answer the following with short written answer. a. What happens to the bond's coupon rate? b. What happens to the bond's price? c. What happens to the bond's yield to maturity? 2. In November 2017, Treasury offers a 4 3/4s of semiannually compounded yield to maturity of 2.6% (Matures 2041). Recognizing that coupons are paid semiannually, calculate the bond's price. Assume face value is $1,000. 3. A 10-year U.S. Treasury bond with a face value of $1,000 pays a coupon of 5.5% (2.75% of face value every six months). The reported yield to maturity is 5.2% (a six-month discount rate of 5.2/2 = 2.6%). a. What is the present value of the bond? b. If the yield to maturity changes to 1%, what will be the present value? c. If the yield to maturity changes to 8%, what will be the present value? d. If the yield to maturity changes to 15%, what will be the present value? 4. If a bond's yield to maturity does not change, the return on the bond each year will be equal to the yield to maturity. Confirm this for both a 1 premium and a discount bond using a 4-year 3 percent coupon bond with annual coupon payments and a face value of $1,000. a. Assume the yield to maturity is 2 percent, what is the bond price today, what is the bond price in one year, and what is the rate of return? b. Assume the yield to maturity is 4 percent, what is the bond price today, what is the bond price in one year, and what is the rate of return? 6. A government bond matures in 6 years, makes annual coupon payments of 5% and offers a yield of 3% annually compounded. Assume face value is $1,000. a. Suppose that one year later the bond still yields 3%. What return has the bondholder earned over the 12-month period? b. b. Now suppose that the bond yields 2% at the end of the year. What return did the bondholder earn in this case?

Answer rating: 100% (QA)

The information provided contains several different bondrelated scenarios that require analysis based on interest rates coupon rates prices and yields ... View the full answer