Chapter 4: Q.5 (page 133)
Suppose today you buy a coupon bond that you plan to sell one year later. Which part of the rate of return formula incorporates future changes into the bond’s price?
It takes into account future change in price of 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
Interest rates were lower in the mid-1980s than in the late 1970s, yet many economists have commented that real interest rates were actually much higher in the mid1980s than in the late 1970s. Does this make sense? Do you think that these economists are right?
Which \(10,000 bond has the higher yield to maturity, a 20-year bond selling for \)8,000 with a current yield of 20% or a 1-year bond selling for $8,000 with a current yield of 10%?
To help pay for college, you have just taken out a \(1,000 government loan that makes you pay \)126 per year for 25 years. However, you don’t have to start making these payments until you graduate from college two years from now. Why is the yield to maturity necessarily less than 12%? (This is the yield to maturity on a normal \(1,000 fixed-payment loan on which you pay \)126 per year for 25 years.)
What is the yield to maturity on a \(10,000-face-value discount bond, maturing in one year, which sells for \)9,523.81?
Calculate the present value of a $1,300 discount bond with seven years to maturity if the yield to maturity is 8%.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
