The table at the right provides information for six different bonds, the current market price (P), the face. value of the bond (V), and the number of years before the bond matures (N). a. In each case, compute the bond's yield, assuming that you keep the bond until it matures. There are no coupons. If x is the bond's yield, then V=P (1+x) where V is the face value of the bond, P is the current market price, and N is the number of years before the bond matures. (Do not round until your final answer. Round your responses to one decimal place.) Bond Number 1a 1b 28 2b 38 3b Bond's Yield (in %) F 7 b. Suppose that bonds 1a, 2a and, 3a are all issued by the same borrower. Can you offer an explanation for the relationship between the bond yields and the terms to maturity? TOM reflects For all of the "a" bonds, we see that the bond yield. with the term to maturity. This likely reflects require a premium to have their the fact that funds tied up for longer periods of time c. Suppose that bonds 1b, 2b, and 3b are all issued by the same borrower. What can you conclude about the riskiness of the 'a' borrower versus that of the "b" borrower? Explain. Notice that for any given term to maturity, the yield on the bond has a relatively higher yield. This probably perceived riskiness of the borrower (bond issuer), as perceived by the lenders (bond holders). d. Notice that the market interest rate is not shown in the table. Explain why knowledge of the market interest rate is unnecessary in order to compute a bond's yield, once. you already know the bond's market price. Knowledge of the market interest rate is unnecessary in order to compute a bond's yield once you already know the bond's market price, because the yield can be computed from knowledge of the OA. next year's payment. OB. face value. OC. market price and the face value. OD. market price.. What aspect of the bond does the market interest rate influence, if anything? OA. The market interest rate influences the bond's present value, which then determines the bond's equilibrium market price. OB. The market interest rate influences the bond's market price. OC. The market interest rate influences the bond's years to maturity, which then determines the bond's equilibrium market price. OD. The market interest rate does not influence any aspects of the bond.. Bond Number 1a 1b 2a 2b 3a 3b Market Price (P) $952 $930 $1731 $1653 $3757 $3512 Face Value (V) $1000 $1000 $2000 $2000 $5000 $5000 Years to Maturity (N 1 2 2 3 3