One-year discount bond issued

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Reference no: EM131682141

1. A one-year discount bond issued by X has a payout of $3,050 and today's price is $2,900. A one-year discount bond issued by Y has a payout of $2,290 and today's price is $2,055. Then the bond issued by X has a ____ yield than the bond issued by Y, and this could be because X has a ____ default risk.

  • higher; lower
  • lower; lower
  • lower; higher
  • higher; higher

2. All else equal, a decrease in the liquidity of U.S. Treasury bonds relative to corporate bonds will shift the demand curve for corporate bonds to the ____ and shift the demand curve for U.S. Treasury bonds to the ____ .
left; left A one-year discount bond issued by X has a payout of $3,050 and today's price is $2,900. A one-year discount bond issued by Y has a payout of $2,290 and today's price is $2,055. Then the bond issued by X has a ____ yield than the bond issued by Y, and this could be because X has a ____ default risk.

  • higher; lower
  • lower; lower
  • lower; higher
  • higher; higher

3.Suppose that the default risk of corporate bonds increases due to a downturn in the economy. As a result, we would expect the equilibrium price on the corporate bonds to ____ and the yield on the corporate bonds to ____ .

  • increase; decrease
  • decrease; increase
  • increase; increase
  • decrease; decrease

4.Analysts predict that short-term interest rates over the next 4 years will be as follows: 3%, 2%, 7%, and 1%, respectively. According to expectations theory, the yield on a discount bond with a three year maturity will be ____ and yield on bond with a four year maturity will be ____.

  • 4%; 4.75%
  • 3.5%; 4.25%
  • 3.5%; 4.5%
  • 4%; 3.25%

5.Consider the same short-term interest rates as in problem 4 above. If the yield on a discount bond that matures in 4 years is 4.25%, then according to liquidity premium theory, the premium attached to the 4 year discount bond is

  • 1%
  • 1.5%
  • 0.5%
  • 0.75%

Reference no: EM131682141

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