What will happen to the realized return if interest rates

Assignment Help Macroeconomics
Reference no: EM13317552

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.

a. If interest rates rise, will the return that is earned exceed or fall short of the original required rate of return? Explain.

b. What will happen to the realized return if interest rates decrease? Explain.

c. Recalculate parts (b) and (c) of problem 16 above, assuming that the bond is held for all five years, to verify your answers to parts (a) and (b) of this problem.

d. If either calculation in part (c) is greater than the original required rate of return, why would an investor ever try to match the duration of an asset with his or her investment horizon?

Reference no: EM13317552

Questions Cloud

If you use only duration to immunize your portfolio : If you use only duration to immunize your portfolio, what three factors affect changes in the net worth of a financial institution when interest rates change?
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

Reviews

Write a Review

Macroeconomics Questions & Answers

  Illustrate what accounting tools also reports would you use

Illustrate what accounting tools also reports would you use. Use the Library and internet to re-explore value chain management.

  Explain why master card is neither priceless nor free

Master Card had a series of cute commercials that list a series of accounting items and costs leading to a priceless product. Cell phones are often advertised as being free. In economics, it is said that nothing of value is either free or priceles..

  Assume if the objective is to increase total income

Assume if the objective is to increase total income, should the price be increased or decreased. Explain.

  Calculate national income

Suppose the government cuts its purchases by $120 billion. As a result, budget deficit is reduced by $40 billion, private domestic decreases by $10 billion,

  Estimate the price elasticity coefficient

Compute the coefficient of price elasticity for the price ranges given in the schedule and complete the first column of the table. What do you notice about the algebraic sign of the values you have just computed? Why is this so?

  Elucidate the organization educe current operations

Elucidate the organization/industry continue, expand, or reduce current operations in order to maximize profits. Explain your reasoning.

  Explain what happens to the level of gross debt

The National Debt Try the following exercises to better understand how the national debt is related to the government's budget deficit Assume that the gross national debt is initially equal to $3 trillion and the federal government then runs a defic..

  Illustrate what are the reporting reasons on why gasoline

Illustrate what are the reporting reasons on why gasoline prices have been fluctuating and trending upward for the past 12 months.

  What is the effect of shorter commute on ninas work time

Nina is able to select her weekly work hours. When a new bridge opens up, it cuts one hour off Nina's total daily commute to work. If both leisure and income are normal goods, what is the effect of the shorter commute on Nina's work time

  Subsiquent questions about the air line company

Find out at least two sources to help you solving the subsiquent questions about the air line company.

  Discuss how to be more effective in job

Evaluate the following statement: "I am a manager in a governmental agency. I have no control over compensation policy. All workers are paid the same salary (everyone is paid according to a set schedule and their remuneration cannot be adjusted by..

  What is the implied price elasticity of demand

"When the British government tripled university fees for foreign students in Great Britain, about one-half of them left to study in other countries." What is the implied price elasticity of demand by foreigners for a British education is (in absolute..

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