Investors view an increase in the default risk of corporate bonds, relative to US Treasury bonds. Consequently, in the market for bonds the yield on US Treasury bonds yield on corporate bonds while the increases; increases increases; decreases decreases; increases decreases; decreases
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- In country Macroland, the government borrows at 5% for 1-year maturity. However, the Central Bank has announced interest rate hikes for the following years, so people expect that the next year the same 1-year bond will pay 7% and that the interest will rise again to 8% in the year after. Compute and draw the yields curve (for 1, 2 and 3 years bonds) of the government of Macroland, assuming that there is no risk of default and no inflation and the Central Bank announcements are credible..Suppose a bond with no expiration date has a face value of $10,000 and annually pays a fixed amount of interest of $700. a. In the table provided below, calculate and enter either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed or the bond price at each of the interest yields shown. Instructions: Enter your answers in the gray-shaded cells. For bond prices, round your answers to the nearest hundred dollars. For interest yields, round your answers to 2 decimal places. Bond Price Interest Yield, % $8,000 7.78 $10,000 $11,000 5.38 b. What generalization can you draw from the completed table? Bond prices and interest rates are directly related. Bond prices and interest rates are not related. Bond prices and interest rates are inversely related. There is insufficient data to make a generalization.Suppose a bond with no expiration date has a face value of $10,000 and annually pays a fixed amount of interest of $950. a. In the table provided below, calculate and enter either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed or the bond price at each of the interest yields shown. Instructions: Enter your answers in the gray-shaded cells. For bond prices, round your answers to the nearest hundred dollars. For interest yields, round your answers to 2 decimal places. Bond Price Interest Yield, % $8,500 10 $10,500 $11,500 7.04 b. What generalization can you draw from the completed table? O Bond prices and interest rates are directly related. O There is insufficient data to make a generalization. O Bond prices and interest rates are inversely related. O Bond prices and interest rates are not related.
- Suppose a bond with no expiration date has a face value of $10,000 and annually pays a fixed amount of interest of $950. a. In the table provided below, calculate and enter either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed or the bond price at each of the interest yields shown. Instructions: Enter your answers in the gray-shaded cells. For bond prices, round your answers to the nearest hundred dollars. For interest yields, round your answers to 2 decimal places Bond Price $8,000 $ 10,000 $11.000 Interest Yield, % 10.56 7:31 b. What generalization can you draw from the completed table? O Bond prices and interest rates are inversely related. O Bond prices and interest rates are directly related. O There is insufficient data to make a generalization. O Bond prices and interest rates are not related.Suppose a bond with no expiration date has a face value of $10,000 and annually pays a fixed amount of interest of $850. a. In the table provided below, calculate and enter either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed or the bond price at each of the interest yields shown. Instructions: Enter your answers in the gray-shaded cells. For bond prices, round your answers to the nearest hundred dollars. For interest yields, round your answers to 2 decimal places. Bond Price Interest Yield, % $ 8,500 8.95 S 10,500 $ 11,500 6.30 b. What generalization can you draw from the completed table? O There is insufficient data to make a generalization. O Bond prices and interest rates are not related. Bond prices and interest rates are inversely related. O Bond prices and interest rates are directly related.Which of the following statements is false? 1 )Because the cash flows promised by the bond are the most that bondholders can hope to receive, the cash flows that a purchaser of a bond with credit risk expects to receive may be less than that amount. 2) By consulting bond ratings, investors can assess the creditworthiness of a particular bond issue. 3.Because the yield to maturity for a bond is calculated using the promised cashflows, the yield of bonds with credit risk will be lower than that of otherwise identical default-free bonds. 4) A higher yield to maturity does not necessarily imply that a bond's expected return is higher. 5) none of the answers are correct
- Suppose a bond with no expiration date has a face value of $10,000 and annually pays a fixed amount of interest of $800 a. In the table provided below, calculate and enter either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed below or the bond price at each of the interest yields shown Instructions: Enter your responses in the gray-shaded cells. For bond prices, round your answers to the nearest dollar For interest yields, enter your answer as a percentage rounded to one decimal place. Bond Price Interest Yield, % $8,000 8.9% $10,000 $11,000 62% b. What generalization can be drawn from the completed table? O Bond prices and interest rates are inversely related O There is insufficient data to make a generalization. O Bond prices and interest rates are directly related. O Bond prices and interest rates are not related.Why is the relationship between price and yield negative?a. Because investors reward higher cash-flows with a lower price.b. Because governments regulation prohibits a positive relationship.c. Because an increase in the yield discounts cash flows at a higher rate and so their netpresent value decreases.d. Because cash flows are variable over a bond’s life.An economist has estimated that, near the point of equilibrium, the demand curve and supply curve for 1 year bonds can be estimated using the following equations:Demand: Price = (-0.5)*Quantity + 930Supply: Price = Quantity + 500Assume the face of the bond is $1,000.1. What is the expected equilibrium price and quantity of bonds in this market to 4 decimal places? Price$ Quantity 2. Given your answer to part (a), which is
- According to the portfolio theroies of money deman , which of the following statement is true? an increase in the epected rate of inlfation increases the deman for money an increase in the real return of stock increases the demand of the money a decrease in wealth increase the deman for money a decrease in the real return on bonds increases the demand for moneyWhich of the following is TRUE for a coupon bond? 31 Select one: a. The yield is less than the coupon rate when the bond price is below the par value b. When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate c. The yield to maturity is greater than the coupon rate when the bond price is above the par value. d. The price of a coupon bond and the yield to maturity are positively related.Suppose that, holding yield constant, investors are indifferent as to whether they hold bonds issued by the federal govemment or bonds issued by state and local governments (that is, they consider the bonds the same with respect to default risk, information costs, and liquidity) Suppose that state governments have issued perpetuities (or consoles) with $78 coupons and that the federal govemment has also issued perpetuities with $78 coupons. If the state and federal perpetuites both have after-tax yields of 8%, what are their pre-tax yields? (Assume that the relevant federal income tax rate is 31.13%) * The pre-tax yield on the state perpetuity will be______________% * The pre-tax yield on the federal perpetuity will be_______________%