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Suppose that you are considering investing in a 4-year bond that has a face value of $1,000 and a coupon rate of 5.3%. Suppose that you purchase the bond, and the next day the market interest rate on similar bonds falls to 4.3%. What is the price of the bond and the current yield now? 0 1000, 5.31% O 1036.04, 5.12% 6) 1036.04, 5.31% O 1035.88, 5.12% Question 9 (1 point) ~/ Saved Suppose that for a price of $900 you purchase a 8-year Treasury bond that has a face value of $1,000 and a coupon rate of 4%. If you sell the bond one year later for $1,100, what was your rate of return for that one-year holding period? 6) 26.7% 0 24.4% 0 27.6% C) 16.7% What is the difference between the yield to maturity on a coupon bond and the rate of return? 0 There is no fundamental difference between the yield to maturity and the rate of return. 0 Yield to maturity is the value of the coupon expressed as a percentage of the price of the bond. Rate of return is the return over a specific holding period that takes into account not just the coupon rate but the price change. 6) Yield to maturity is the return on a bond assuming the bondholder holds the bond for the full maturity. Rate of return is the return over a specific holding period that takes into account not just the coupon rate but the price change. O None of the above. Question 11 (1 point) J Saved Which of the following would shift the demand curve for bonds to the left? (check all correct answers) 3 The expected return on bonds relative to other assets increases. 2] Expected inflation increases. 2] The expected return on stocks increases. :] The liquidity of bonds increases. 2] Households' wealth decreases. Which of the following would shift the supply curve for bonds to the right? (check all correct answers) Subsidies to business increase. Firm's expected profitability increases. 0 Corporate taxes increase. Government borrowing increases. C] Expected inflation decreases. Explain what will happen to the equilibrium price and equilibrium quantity of bonds in the following situation: Wealth in the economy increases at the same time that Congress raises the corporate income tax. 6) The demand curve will shift to the right and the supply curve will shift to the left. This increases the price of bonds and the quantity of bonds is indeterminate. 0 Both the demand curve and the supply curve will shift to the right. This increases the price of bonds and the quantity of bonds is indeterminate. O The demand curve will shift to the left and the supply curve will shift to the right. This decreases the price of bonds and the quantity of bonds is indeterminate. 0 Both the demand curve and the supply curve will shift to the left. This decreases the price of bonds and the quantity of bonds is indeterminate. Explain what will happen to the equilibrium price and equilibrium quantity of bonds in the following situation: The federal government runs a budget deficit. The supply of bonds increases, shifting the supply curve to the right, thus forcing the price down and the quantity up. 0 The demand for bonds increases, shifting the demand curve to the right, thus forcing the price and quantity up. 0 The demand for bonds decreases, shifting the demand curve to the left, thus forcing the price and quantity down. 0 The supply of bonds decreases, shifting the supply curve to the left, thus forcing the price up and the quantity down. In April 2009, as part of the stimulus package intended to fight the recession of 20072009, Congress authorized "Build America Bonds," which states and cities could issue to build roads, bridges, and schools. Unlike with regular municipal bonds, however, the coupons on Build American Bonds are taxable. Would you expect the interest rates on these bonds to be higher or lower than the interest rates on comparable municipal bonds? Briefly explain. @ Interest rates on Build America Bonds are likely to be higher because taxing the coupon reduces the coupon paid to the bond purchaser. 0 Interest rates on Build America Bonds are likely to be the same as interest rates on comparable municipal bonds. O Interest rates on Build America Bonds are likely to be lower because fewer investors will prefer these bonds when tax-exempt municipal bonds are available. 0 Interest rates on Build America Bonds are likely to be lower as investors will accept a lower interest rate in order to support Obama's American Recovery and Reinvestment Act