Chapter 3: 10-7B (page 329)
Two bonds have identical times to maturity and coupon rates. One is callable at 105, the other at 110. Which should have the higher yield to maturity? Why?
The YTM on the bond with lower callable i.e. 105 will be higher in comparison to the other bond.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Question: Under the liquidity preference theory, if inflation is expected to be falling over the next few years, long-term interest rates will be higher than short-term rates. True/false/ uncertain? Why?
A bond has a current yield of 9% and a yield to maturity of 10%. Is the bond selling above or below par value? Explain.
a. Janet Meer is a fixed-income portfolio manager. Noting that the current shape of the yield curve is flat, she considers the purchase of a newly issued, option-free corporate bond priced at par; the bond is described in Table 11.9. Calculate the duration of the bond.
Meer is also considering the purchase of a second newly issued, option-free corporate bond, which is described in Table 11.10. She wants to evaluate this second bond’s price sensitivity to an instantaneous, downward parallel shift in the yield curve of 200 basis points. Estimate the total percentage price change for the bond if the yield curve experiences an instantaneous, downward parallel shift of 200 basis points.
A 30-year maturity bond has a 7% coupon rate, paid annually. It sells today for \(867.42. A 20-year maturity bond has a 6.5% coupon rate, also paid annually. It sells today for\)879.50. A bond market analyst forecasts that in five years, 25-year maturity bonds will sell at yields to maturity of 8% and that 15-year maturity bonds will sell at yields of 7.5%. Because the yield curve is upward-sloping, the analyst believes that coupons will be invested in short-term securities at a rate of 6%. Which bond offers the higher expected rate of return over the five-year period?
A nine-year bond has a yield of 10% and a duration of 7.194 years. If the bond’s yield changes by 50 basis points, what is the percentage change in the bond’s price?
What do you think about this solution?
We value your feedback to improve our textbook solutions.
