Bond A pays $8,000 in 20 years. Bond B pays $8,000 in 40 years. (To keep things simple, assume these are zero-coupon bonds, which means the $8,000 is the only payment the bondholder receives.) a. If the interest rate is 3.5 percent, what is the value of each bond today? Which bond is worth more? Why? (Hint: You can use a calculator, but the rule of 70 should make the calculation easy.) b. If the interest rate increases to 7 percent, what is the value of each bond? Which bond has a larger percentage change in value? c. Based on the example above, complete the two blanks in this sentence: "The value of a bond [rises/falls] when the interest rate increases, and bonds with a longer time to maturity are [more/less] sensitive to changes in the interest rate.

What happens to interest rates in the market if the stock brokerage commission declines? Explain the reason for your answer!

Imagine that a local water company issued $10,000 ten-year bond at an interest rate of 6%. You are thinking about buying this bond one year before the end of the ten years, but interest rates are now 9%. a. Given the change in interest rates, would you expect to pay more or less than $10,000 for the bond? b. Calculate what you would actually be willing to pay for this bond.

A bond has a Macaulay duration of 10.00 and is priced to yield 8.0​%. If interest rates go up so that the yield goes to 8.5%​, what will be the percentage change in the price of the​ bond? Now, if the yield on this bond goes down to 7.5​%, what will be the​ bond's percentage change in​ price? Comment on your findings. If interest rates go up to 8.5​%, the percentage change in the price of the bond is nothing​%. ​(Round to two decimal​ places.) If interest rates go down to 7.5​%, the percentage change in the price of the bond is nothing​%. ​(Round to two decimal​ places.) Comment on your findings.  ​(Select the best answer​ below.)     A. As interest rates​ decrease, the price of the bond decreases. As interest rates​ increase, the price of the bond increases.   B. As interest rates increase or​ decrease, the price of the bond will always increase.   C. As interest rates increase or​ decrease, the price of the bond remains the same.   D. As interest rates​…

If interest rates decline, which would you rather beholding, long-term bonds or short-term bonds? Why?Which type of bond has the greater interest-rate risk?

Imagine that a local water company issued a $10,000 ten-year bond at an interest rate of 6%. You are thinking about buying this bond one year before the end of the ten years, but interest rates are now 9%. Calculate what you would actually be willing to pay for this bond.

Suppose the yield on short-term government securities (perceived to be risk-free) is about 4%. Suppose also that the expected return required by the market for a portfolio with a beta of 1 is 14%. According to the capital asset pricing model: a. What is the expected return on the market portfolio?b. What would be the expected return on a zero-beta stock?c. Suppose you consider buying a share of stock at a price of $30. The stock is expected to pay a dividend of $4 next year and to sell then for $31. The stock risk has been evaluated at β = -0.5. Is the stock overpriced or underpriced?

When interest rates decrease, how might businesses andconsumers change their economic behavior?

Suppose that stock prices were to fall by 10 percent in the stock market. All else equal, would the lower stock prices be likely to cause a decrease in real GDP? How might they predict a decline in real GDP?