Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Record your answers in the fill-in-the-blank quiz between between 6 a.m. and 10 p.m. on Friday, October 16. Round off to the number of decimal

Record your answers in the "fill-in-the-blank" quiz between between 6 a.m. and 10 p.m. on Friday, October 16. Round off to the number of decimal places shown for each problem and use the "%" sign in your answer. You will have 20 minutes to record your answers. 9 questions @ 2 pts. for 18 points total. On October 15, 2016, Koala, Inc. issued a 10 year bond (with a typical $1000 face value) that had an annual coupon value of $60. [We are assuming that the 2020 coupon has just been redeemed.] Initially, the bond was sold for the premium price of $1,025. On October 15, 2020, this bond was selling for only $975. The market rate of interest for a riskless corporate bond, of this maturity, was 4.5% on October 15, 2016, which reflects market expectations about future rates of inflation. The market rate of interest for a riskless corporate bond, of this maturity, was 4.0% on October 15, 2020, which reflects market expectations about future rates of inflation. 1. What was the nominal yield on this bond on October 15, 2016? [To 1 decimal place.] 2. What was the current yield on this bond on October 15, 2016? [To 2 decimal places.] 3. What was the yield to maturity for this bond on October 15, 2016? [To 3 decimal places.] 4. What was the risk premium for this bond on October 15, 2016? [To 3 decimal places.] 5. What was the nominal yield on this bond on October 15, 2020? [To 1 decimal place.] 6. What was the current yield on this bond on October 15, 2020? [To 2 decimal place.] 7. What was the yield to maturity for this bond on October 15, 2020? [To 3 decimal places.] 8. What was the risk premium for this bond on October 15, 2020? [To 3 decimal places.] 9. It is now October 15, 2020 and suddenly the Federal Reserve announces a massive program to reduce inflation. Instantly, the market rate of interest for a riskless corporate bond that would apply to this bond, falls from 4.0% to 2.5%. If there is no change in the risk premium expected for this Koala, Inc. bond, what will be this bond's yield to maturity? [To 3 decimal places.] Note that if this has all been done correctly, following from #9, you should get $1,049.88 as the new selling price for this Koala, Inc. bond

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Microeconomics

Authors: N Gregory Mankiw

9th Edition

035713348X, 9780357133484

More Books

Students also viewed these Economics questions