a. Calculate modified duration using the information provided. Do not round intermediate calculations. Round your answer to two decimal places. Use only the data provided in the table above (in the problem statement) for your calculations. years b. What is a better measure when calculating the bond's sensitivity to changes in interest rates? is a better measure of the bond's sensitivity to changes in interest rates as-Select- -Select- c. Identify the direction of change in modified duration if: 1. the coupon of the bond were 14%, not 12%. Modified duration -Select- as the coupon increases. 2. the maturity of the bond were 9 years, not 15 years. Modified duration -Select- ✓as maturity decreases. considers only the final cash flow, while -Select- includes other factors.

a. Calculate modified duration using the information provided. Do not round intermediate calculations. Round your answer to two decimal places. Use only the data provided in the table above (in the problem statement) for your calculations. years b. What is a better measure when calculating the bond's sensitivity to changes in interest rates? is a better measure of the bond's sensitivity to changes in interest rates as-Select- -Select- c. Identify the direction of change in modified duration if: 1. the coupon of the bond were 14%, not 12%. Modified duration -Select- as the coupon increases. 2. the maturity of the bond were 9 years, not 15 years. Modified duration -Select- ✓as maturity decreases. considers only the final cash flow, while -Select- includes other factors.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The interest rate on one-year Treasury bonds is 1.1 percent, the rate on two-year T-bonds is 1.3 percent, and the rate on three-year T-bonds is 1.5 percent. Using the expectations theory, compute the expected one-year interest rate in the second year (Year 2 only). Round your answer to one decimal place. _________ % Using the expectations theory, compute the expected one-year interest rate in the third year (Year 3 only). Round your answer to one decimal place. _________ %
An insurance company is analyzing the following three bonds, each with five years to maturity, annual interest payments, and is using duration as its measure of interest rate risk. What is the duration of each of the three bonds? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)) a. $10,000 par value, coupon rate=9.7%, r 0.17 b. $10,000 par value, coupon rate 11.7%, r= 0.17 c. $10,000 par value, coupon rate = 13.7%, p=0.17 Duration of the bond years
Suppose the current interest rate on a one-year bond is 2% and the current interest rate on a two-year bond is 4%. The term premium on a two-year bond is 1%. According to the expectations hypothesis, what interest rate should we expect on a one-year bond next year? Answer as a percentage to one decimal place and do not include symbols (e.g. $, %, commas) in your answer. Answer:
c. How do the interest rate changes affect premium bonds and discount bonds?Bonds, in general, (decrease or increase) in price when interest rates go up. When interest rates decrease, bond prices (decrease or increase) .d. Suppose the bond were to mature in 12 years. What will be the bond’s price if rates in the market (i) decrease to 9.86 percent or (ii) increase to 13.86 percent? (Round intermediate calculations to 2 decimal places, e.g. 1.25 and final answer to 2 decimal places, e.g. 15.25.) (i) Bond's price if rate decrease to 9.86 percent $ (ii) Bond's price if rate increase to 13.86 percent $
You are trying to compare the interest rate risks of two bonds: (i) a 15-year 8% bond, and (ii) a 10-year 6% bond. Both bonds pay semi-annual interest payments. The current market interest rate for the 15-year bond is 7.2% and the market interest rate for the 10 year old bond is 5.8% a. determine the (macaulay) durations of the two bonds b. based on your findings in a and b which bond has a greater interest rate risk? explain. Please show excel solutions thank you!!
Select the correct answer to each of the following statements. A. Increase B. Decrease C. Remain Constant 1. The amount of interest expense will _______ each payment period for a bond issued at a discount. 2. When a bond is issued at a discount, the cash interest payment will _________ over the life of the bond. 3. When a bond is issued at a premium, the carrying value of the bond will _______ over the life of the bond.
Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds over years 2, 3 and 4 are as follows: 1R₁ = 4.80%, E(2r₁) = 5.45%, E(3r₁) = 5.95%, E(41) = 6.10% Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for the four-year-maturity government bond? A. 5.57% B. 5.62% C. 5.83% D. 6.10%
Suppose the returns on long-term government bonds are normally distributed. Assume long-term government bonds have a mean return of 6.1 percent and a standard deviation of 9.8 percent. What is the approximate probability that your return on these bonds will be less than −3.7 percent in a given year? Use the NORMDIST function in Excel® to answer this question. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. What range of returns would you expect to see 95 percent of the time? Note: A negative answer should be indicated by a minus sign. Enter your answers from lowest to highest. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. What range would you expect to see 99 percent of the time? Note: A negative answer should be indicated by a minus sign. Enter your answers from lowest to highest. Do not round intermediate calculations and enter…
For a one year bond of $2,300 at a simple interest rate of 10% per year, find the semiannual interest payment and the total interest earned over the life of the bond. The semiannual interest on the bond is s (Simplify your answer. Type an integer or a decimal. Round to the nearest cent as needed.) The total interest on the bond is $. (Simplify your answer. Type an integer or a decimal. Round to the nearest cent as needed.)
Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds over years 2, 3 and 4 are as follows: 1R1 = 4.80%, E(2r1) = 5.45%, E(3r1) = 5.95%, E(4r1) = 6.10% Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for the four-year-maturity government bond? 5.57% 5.62% 5.83% 6.10%
Using semiannual compounding, find the prices of the following bonds: a. A 9.8%, 15-year bond priced to yield 7.7%. b. A 7.3%, 10-year bond priced to yield 9.4%. c. A 11.6%, 20-year bond priced at 9.5%. Repeat the problem using annual compounding. Then comment on the differences you found in the prices of the bonds. a1. Using semiannual compounding, the price of the bond is $nothing. (Round to the nearest cent.)
Using semiannual compounding, find the prices of the following bonds: a. A 9.4%, 15-year bond priced to yield 7.2%. b. A 7.3%, 10-year bond priced to yield 9.5%. c. A 12.8%, 20-year bond priced at 10.6%. Repeat the problem using annual compounding. Then comment on the differences you found in the prices of the bonds. a1. Using semiannual compounding, the price of the bond is $. (Round to the nearest cent.) b1. Using semiannual compounding, the price of the bond is $. (Round to the nearest cent.) c1. Using semiannual compounding, the price of the bond is $. (Round to the nearest cent.) a2. Using annual compounding, the price of the bond is $ b2. Using annual compounding, the price of the bond is $ c2. Using annual compounding, the price of the bond is $. (Round to the nearest cent.) Comment on the differences you found in the prices of the bonds. (Select the best answer below.) (Round to the nearest cent.) (Round to the nearest cent.) Bonds selling at a premium sell at lower prices when…

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