Homework: Assignment 3

P6-8 (similar to) Question Help Term Structure A 1-year Treasury bill currently offers a 4% rate of return. A 2-year Treasury note offers a 4.5% rate of return. Under the expectations theory, what rate of return do investors expect a 1-year Treasury bill to pay next year? The rate of return investors expect a 1-year Treasury bill to pay next year is |%. (Round to two decimal places.)P6-1 1 (Similar 1:0) 55 Question Help Q- Bond prices and yields Assume that the Financial Management Corporation's $1 ,OOO-par-value bond has a 5.500% coupon, matures on May 15, 2027, has a current price quote of 93.276 and a yield to maturity (YTM) of 6.595%. Given this information, answer the following questions: What was the dollar price of the bond? What is the band's current yield? Is the bond selling at par, at a discount, or at a premium? Why? Compare the band's current yield calculated in part b to its YTM and explain why they differ. 9-9?!\" The dollar price of the bond is $ . (Round to the nearest cent.) P6-16 (Similar t0) ' 5; Question Help Q Bond valuationAnnual Interest Calculate the value of the bond shown in the following table, assuming it pays interest annually. (Click on the icon here 121 in order to copy the contents of the data table below into a spreadsheet.) Par value Coupon interest rate Years to maturity Required return $100 7% 18 17% The value of the bond is $ . (Round to the nearest cent.) P6-1 9 (Similar t0) 3; Question Help a Bond value and timeChanging required returns Personal Finance Problem Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have $1,000 par values and 13% coupon interest rates and pay annual interest. Bond A has exactly 9 years to maturity, and bond B has 19 years to maturity. Calculate the present value of bond A if the required rate of return is: (1) 10%, (2) 13%, and (3) 16%. Calculate the present value of bond B if the required rate of return is: (1) 10%, (2) 13%, and (3) 16%. From yourndings in parts a and b, discuss the relationship between time to maturity and changing required returnst If Lynn wanted to minimize interest rate risk. which bond should she purchase? Why? 999'!- (1)The value of bond A, ifthe required return is 10%, is $ , (Round to the nearest cent.) Yield to maturity The relationship between a bond's yield to maturity and coupon interest rate can be used to predict its pricing level. For the bond listed below, state whether the price of the bond will be at a premium to par, at par, or at a discount to par. Coupon interest rate Yield to maturity 7% 6% What is the price of the bond in relation to its par value? (Select the best answer below.) 0 A. The bond sells at par. 0 B. The bond sells at a discount to par. 0 c. The bond sells at a premium to par