70. Refer to the above information. If the price of this bond falls by $200, the interest rate will: A) rise by 2.5 percentage points. B) rise by 5 percentage points. C) fall by 2.5 percentage points. D). fall by 5 percentage points.
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- 5. How much is the interest rate on a bond that has a face value of $1,000, a selling price of $800, and that pays $80 interest?12)Alex buys a bond for $10,000 and receives interest payments of $500 every six months. The interest rate on the bond is approximately Group of answer choices 4 percent. 8 percent. 10 percent. 15 percent...relationship between bond price and interest rate. Explain it comprehensively and discuss in detail with real life examples. 1) There are 2) Discuss the concept of capital in terms of finance comprehensively and the ways it is raised in details. 3) Discuss the concept of capital market in detail focusing on how it functions in the financial market and how it satisfies suppliers (investors/savers) and demanders (companies/firms) by giving real life examples. 4) "The secondary market directly promotes capital formation." Do you agree with this statement? Why? Discuss in detail.
- 5. Suppose this year you buy 1.5% coupon rate, $10,000 face value bond for $10,100 that has 3 years left till maturity. Suppose next year market interest rates increase to 2.0% and you decide to sell it your bond that year. a) Calculate the selling price of your bond next year. In another words, what price would make your bond competitive when market yields are at 2.0%? b) Given the selling price from part (a), what was your annual rate of return from owning this bond? You can assume you kept a single coupon payment during the year you owned the bond.True or False: With a discount bond, the return on a bond is equal to the rate of capital gain. A. True: A discount bond has no coupon payments so the return on the bond is equal to the rate of capital gain. B. False: Bond returns can never equal the rate of capital gain; there must be a capital loss or gain indicated. C. True: A discount bond pays fixed interest payments every year so the return is equal to the rate of capital gain. D. There is no way to determine this without the knowing the coupon amount and interest rate.1. Suppose that people expect the one-year interest rate will equal 1% forever. a. Consider a ten-year zero coupon (discount) bond with a face value of $1000. The bond has a current price of $910. Is the term premium positive or negative? b. Redo question (a), assuming that the bond has a current price of $900. c. Using FRED, plot the behavior of the term premium on a 10-year zero coupon bond over the past 25 years in the US.
- 3. Suppose Ford Motor Company issues a five year bond with a face value of $5,000 that pays an annual coupon payment of $150. a. What is the interest rate Ford is paying on the borrowed funds? b. Suppose the market interest rate rises from 3% to 4% a year after Ford issues the bonds. Will the value of the bond increase or decrease?3. Present value can be used to determine the fair price -or value - of a bond. In the examples that follow, assume you are working with zero-coupon bond and that there are no transaction costs. A zero-coupon bond is one that pays all interest and the principal when the bond matures. For example, suppose somebody offers to sell you a bond that will pay a future value of $225 – interest included - when it matures in two years. If the current market interest rate is 3%, then what would be a fair price for you to pay for this bond? a. The value of a bond changes whenever the current market interest rates change. For example, suppose you bought a bond in 2015 that promises to pay you 5% annual interest until it matures in 2020. The value of your bond (i.e., the price that you can sell it for if you choose to sell it before maturity) will change if the market interest rate changes. To understand why, work through the following examples. b. Suppose you purchased a bond for $181.82 that will…9. Housing prices: Suppose a condominium can be rented for $1,000 a month, it depreciates at 10 percent per year, the annual interest rate is 5 percent, and the tax rate relevant for the mortgage interest deduction is 40 percent. Let the down-payment rate and the annual growth rate of condominium prices be given by the table below: Growth rate of condo prices (percent) Down-payment rate, X(percent) Price of the condo 20 20 5 20 10 20 | 5 100 10 5 5 1. For each case, compute the value of the housing price according to the simple theory developed in the chapter. 2. Based on your results, discuss the sensitivity of condo prices to the expected capital gain. 3. Based on your results, discuss the sensitivity of condo prices to the down-payment rate. 2. in
- 41. Suppose that government institutes an investment tax credit and such policy generates an increase in the government budget deficit. This would: a. shift the saving curve (i.e. supply of loanable funds) to the left. b. cause the real interest rate to fall.Part II. Technical/Mathematical For each of the following events and assuming ceteris paribus, describe and explain concisely the effects, if any, on the IS schedule and/or the LM schedule (or alternatively the MP schedule) and hence the output and real interest rate in equilibrium. 2.117. When the interest rate in an economy rises, the stock market typically reacts negatively. This is because (a) the future dividends companies provide to their investors are discounted more heav- ily. (b) the present values of the future dividends companies provide to their investors decrease. (e) investors sell their investments in the stock market and deposit the money into banks. (d) All of the above are correct. 18. Suppose that the interest rate is 8%. The sum of the present values of three payments of $500 to be received in 3 consecutive years is calculated as (a) 8500 x 1.08 x 3 (b) S00 (1.08) (1.08 1O8 (c) 8500 x 1.08 + 8500 x (1.08)2 + 8500 x (1.08)3 (d) x 3 1O8 19. When a person buys insurance, which of the following best describes the economic transaction? (a) The person donates money to the insurance company. (b) The insurance company pays the person to buy the risk, a desirable commodity, from him/her. (c) The person pays to sell the risk, an undesirable commodity, to…
