Today is January 2, 2015, and according to the results of a recent survey, investors expect the
Question:
Year One-Year Rate
2018 ......... 5.0%
2019 ......... 4.0
2020 ......... 3.0
The rates given here include the risk-free rate, rRF, and appropriate risk premiums. Today, a three-year bond—that is, a bond that matures on December 31, 2017—has an interest rate equal to 6 percent. What is the yield to maturity for bonds that mature at the end of 2018, 2019, and 2020?
Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
Step by Step Answer:
We know the following r 3year bo...View the full answer
Related Video
Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.
Students also viewed these Corporate Finance questions
-
Today is January 1, 2012, and according to the results of a recent survey, investors expect the annual interest rates for the years 2015 through 2017 to be: Year One-Year Rate...
-
Today is January 1, 2009, and according to the results of a recent survey, investors expect the annual interest rates for the years 20122014 to be as follows: Year One-Year Rate...
-
The following represent the results of a survey in which individuals were asked to disclose what they perceive to be the ideal number of children. (a) What is the probability an individual believes...
-
Convert decimal + 49 and + 29 to binary, using the signed-2's-complement representation and enough digits to accommodate the numbers. Then perform the binary equivalent of ( +29) + (-49), (-29) +...
-
Three horizontal angles were observed around the horizon of station A. Their values are 165o07'54", 160o25'36" and 34o26'36". Assuming equal weighting, what are the most probable values for the three...
-
What is SEPA?
-
Collect data for an appropriate time interval, usually long enough to include all likely conditions. LO.1
-
The bookkeeper for Brooks Equipment Repair made a number of errors in journalizing and posting, as described below. 1. A credit posting of $450 to Accounts Receivable was omitted. 2. A debit posting...
-
What distinguishes a current liability from a long-term liability? Why is it so important to report these separately? How is this information used in decision making applications?
-
27) Apple makes three models of the iPOD (Shuffle, Nano, and Touch). The selling prices per unit are $49, $149 and $229, respectively for each model. Apple manufacture these three versions at labor...
-
Suppose economists have determined that the real risk-free rate of return is 3 percent and that inflation is expected to average 2.5 percent per year long into the future. A one-year Treasury note...
-
Suppose current interest rates on Treasury securities are as follows: Maturity Yield 1 year ................ 5.0% 2 years ............... 5.5 3 years ............... 6.0 4 years ............... 5.5...
-
Refer to Table 13-2 on page 600 and identify the efficiency of the sign test. What does that value tell us about the sign test? Table 13-2:
-
How do socio-cognitive mechanisms, such as social identity theory and self-categorization theory, contribute to the formation and maintenance of organizational culture ?
-
How do you Sales Forecast and an Expense forecast for future years?
-
2. Do you really think the Bono case described in Ch. 2 is a genuine ethical conflict? Explain. 6. Describe the ethical issue in the Siemens case
-
How do I calculate using the SPC method if my key metric is time
-
Labor Standards: Where Do They Belong on the International Trade Agenda? Author(s): Drusilla K. Brown Link. https://viu.summon.serialssolutions.com/?#!/search?....
-
Discuss the implications for the nurse of the directive pertaining to UAP delegation any other task that the HHA may choose to have the home health aide perform.
-
Four GWU students have been selected to taste food sold by 3 different food trucks labeled as food truck A, B and C on H & 22nd Streets every Monday for 3-weeks. For each student, food trucks are...
-
You want to be able to withdraw $ 800 $ 800 from a savings account at the end of year 1, $ 900 $ 900 at the end of year 2, $ 1 $ 1 ,000 at the end of year 3, and so on over a total of 5 years. How...
-
Describe how common-size statements are useful.
-
How do you calculate common-size analysis on the income statement? a. Income statement line item/gross profit b. Income statement line item/net income c. Net sales/income statement line item d....
-
Kokoyas Firm calculates its free cash flow at only $2,000, which the company feels is quite low based on its historical performance and compared to others in its industry. What actions might Kokoyas...
-
Los datos de la columna C tienen caracteres no imprimibles antes y despus de los datos contenidos en cada celda. En la celda G2, ingrese una frmula para eliminar cualquier carcter no imprimible de la...
-
Explain impacts of changing FIFO method to weighted average method in inventory cost valuations? Explain impacts of changing Weighted average method to FIFO method in inventory cost valuations?...
-
A perpetuity makes payments starting five years from today. The first payment is 1000 and each payment thereafter increases by k (in %) (which is less than the effective annual interest rate) per...
Study smarter with the SolutionInn App