Show that a 9 percent yield also will be earned if interest

Assignment Help Macroeconomics
Reference no: EM13317551

Suppose you purchase a five-year, 15 percent coupon bond (paid annually) that is priced to yield 9 percent. The face value of the bond is $1,000.

a. Show that the duration of this bond is equal to four years.

b. Show that if interest rates rise to 10 percent within the next year and your investment horizon is four years from today, you will still earn a 9 percent yield on your investment.

c. Show that a 9 percent yield also will be earned if interest rates fall next year to 8 percent.

Reference no: EM13317551

Questions Cloud

What is the voltage supplied to the recharger : A transformer with a turns ratio (secondary/primary) of 1:15 is used to step down the voltage from a 120-V wall socket to be used in a battery recharging unit
Create the table for the relation training courses : An ER diagram for the system. Show all entities, relationships, cardinalities and optionalities. Also, include all intersection entities. You must use the Finkelstein methodology as per the study book and tutorials.
Determine what is the probability of failure of the antenna : A large parabolic antenna is designed against wind load. During a wind storm, the maximum wind-induced pressure on the antenna, P, is computed as P= 1/2CRV^2 Where C = drag coefficient, R = air mass density in slugs/ft3,
What will happen to the realized return if interest rates : Consider the case in which an investor holds a bond for a period of time longer than the duration of the bond, that is, longer than the original investment horizon.
Show that a 9 percent yield also will be earned if interest : Show that if interest rates rise to 10 percent within the next year and your investment horizon is four years from today, you will still earn a 9 percent yield on your investment.
Calculate the numerical value of the leverett j- function : The medium contains a wetting phase in equal proportions. Calculate the numerical value of the Leverett J- function for this idealized porous medium. Assume the wall thickness of the capillary tube to be negligible small.
Determine the stretch of the cord at the angle of cord : The two disks each have a mass of 18 kg and are attached at their centers by an elastic cord that has a stiffness of k= 1.6 kN/m. Determine the stretch of the cord when the system is in equilibrium and the angle of the cord.
Bond that pays an annual coupon of 10 percent and trades : Calculate the duration of a two-year, $1,000 bond that pays an annual coupon of 10 percent and trades at a yield of 14 percent. What is the expected change in the price of the bond if interest rates decline by 0.50 percent
You have discovered that the price of a bond rose from : You have discovered that the price of a bond rose from $975 to $995 when the yield to maturity fell from 9.75 percent to 9.25 percent. What is the duration of the bond?

Reviews

Write a Review

 

Macroeconomics Questions & Answers

  Show your selection of the determinants of demand and supply

More demand and supply should be included in your analysis Warning: you are not required to "prove" or show your selection of the determinants of demand and supply. But your discussion and selection must be reasonable.

  What approach to economics does georges statement reflect

Economist George Stigler once wrote that, according to consumer theory, "if consumers do not buy less of a commodity when their incomes rise, they will surely buy less when the price of the commodity rises."

  Price discrimination by firm-its consequences on consumer

A firm with costs C(Q) = 1,000 + 60Q + 0.1Q2 is able to price-discriminate-What would happen if it were forced to charge all its customers the same price?

  It is like the frb has already tried to stimulate economy

It is like the FRB has already tried to stimulate the economy by lowering interest rates

  Optimal consumption bundle to maximize utility

The table below shows the marginal utility a costumer would get by purchasing various quantities-What combination of the three products should be purchased in order to maximize utility?

  Description of price and income elasticity

Using the midpoint formula, calculate the price elasticity of demand for the following problem: Calculate the income elasticity of demand using the general formula for elasticity:

  Maximize bills utility subject to the budget constraint

Bill gets utility (satisfaction) from two goods, x and y, according to the utility function u(x,y) = ln(x) +ln(y). While Bill would like to consume as much as possible he is limited by his income, which is 100 dollars.

  Pricing strategies

In the 1st half of the 20th century, AT&T had a near monopoly on local and long distance phone service. The company charged a price for local telephone services.

  Elucidate the own price elasticity for atm fees

Elucidate the own price elasticity for ATM fees charged to non-customers. At the current ATM fee, should you raise or lower your ATM fees.

  Why do people oppose government intervening in such ways

Consider a macroeconomic model of an economy in Long Run market equilibrium. Suppose there were a shock which was going to cause a decrease in aggregate demand. a. What steps could a government take in order to avoid the long-run market correction

  Prediction of future spot rate from forward rate

If you assume that the forward rate is a predictor of the future spot rate, does it suggest that the Dollar should have appreciated or depreciated from 2001 to 2002? (round to nearest integer)

  What is her afc per poster if she prints 10000 posters

Karen runs a print shop that makes posters for large companies. It is a very competitive business. The market price is currently $1 per poster. She has fixed costs of $250.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd