You predict that interemainder prices are about to autumn. Which bond will certainly offer you the greatest funding gain?A. Low coupon, long maturityB. High coupon, brief maturityC. High coupon, long maturityD. Low coupon, brief maturity
A low coupon, long maturity bond will have the highest duration and will, therefore, develop the largest price readjust when interest rates change.

You are watching: Find the duration of a 6 coupon bond


Find the duration of a 6% coupon bond making annual coupon payments if it has actually three years until maturity and also a yield to maturity of 6%. What is the duration if the yield to maturity is 10%?
When YTM = 6%, the duration is 2.8334.When YTM = 10%, the duration is 2.8238When the yield to maturity increases, the duration decreases.(LOOK AT CHART IN THE ANSWER SHEET)
A bond via a 9-year duration is worth $1,080, and its yield to maturity is 8%. If the yield to maturity falls to 7.84%, you would certainly predict that the new value of the bond will be approximately _________A.$1,035B.$1,036C.$1,094D.$1,124
C.$1,094ΔP/P= -D*(Δy)D* = D/(1 + y) = 9/1.08 = 8.33ΔP/P= -D*(Δy) = -8.33(-.16%) = 1.33%New price = $1,080(1.01333) = $1,094.40
When interest prices boost, the duration of a 20-year bond offering at a premium ________A. increases B. decreases C. remains the exact same D. boosts at initially and then declines
You have purchased a Guaranteed Investment Contracts (GICs) from an insurance firm that promises to pay you a 5% compound price of rerevolve per year for 6 years. If you pay $10,000 for the GIC now and also receive no interemainder along the way you will certainly acquire __________ in 6 years (to the nearest dollar)A. $12,565 B. $13,000 C. $13,401 D. $13,676
A bond"s price volatility _________ at a/an _________ price as maturity boosts. A. increases; increasingB. increases; decreasingC. decreases; increasingD. decreases; decreasing
All other points equal, which of the adhering to has the longest duration? A. A 30 year bond with a 10% coupon B. A 20 year bond through a 9% couponC. A 20 year bond with a 7% coupon D. A 10 year zero coupon bond
All other points equal, which of the complying with has actually the shortest duration? A. A 30 year bond via a 10% coupon B. A 20 year bond via a 9% coupon C. A 20 year bond through a 7% coupon D. A 10 year zero coupon bond
What are the differences between bottom-up and top-dvery own viewpoints to protection valuation? What are the benefits of a top-down approach?
A top-dvery own method to defense valuation starts with an evaluation of the global and also domestic economy. Analysts that follow a top-down strategy then narrow their attention to an sector or sector likely to percreate well, provided the intended performance of the bigger economy.Finally, the analysis focuses on specific suppliers within an sector or sector that has actually been established as most likely to perform well. A bottom-up strategy typically emphasizes fundamental analysis of individual company stocks and is mainly based on the idea that undervalued stocks will certainly perform well regardmuch less of the prospects for the industry or the larger economy.The major advantage of the top-dvery own strategy is that it gives a structured technique to incorporating the impact of financial and also financial variables, at eincredibly level, into analysis of a company"s stock. One would intend, for example, that prospects for a certain industry are extremely dependent on larger economic variables. Similarly, the performance of an individual company"s stock is most likely to be considerably impacted by the prospects for the industry in which the agency operates.
How do each of the following impact the sensitivity of earnings to the service cycle:A. Financial leverageB. Operating leverage
A.Financial leverage rises the sensitivity of profits in the organization cycle since the interemainder payments need to be made regardmuch less of the service cycle. Companies would certainly thus end up being more sensitive to the business cycle while increasing their financial leverage.B.Firms via high fixed expenses are sassist to have high operating leverage.As little swings in organization problems can have big impacts upon profitcapability, they are more sensitive to the service cycle.
The current value of a firm"s projected cash flows are $15 million. The break-up value of the firm if you were to offer the significant assets and also divisions separately would certainly be $20 million. This is an instance of what Peter Lynch would certainly contact a(n):A. StalwartB. Slow-development firmC. TurnaroundD. Asset play
D. Ascollection play. A few of the useful assets of the company are not currently reflected in the present value.
The analysis of the components of firm worth is called _____________.A. standard analysisB. technological analysisC. momentum analysisD. indexing
The many widely offered monetary plan tool is _________.A. altering the discount rateB. transforming reserve requirementsC. open sector operationsD. enhancing the budgain deficit
If you believe the economic climate is around to go into a recession, you might readjust your asset alarea by offering _______ and also buying ______.A. growth stocks; irreversible bondsB. long-term bonds; growth stocksC. defensive stocks; development stocksD. protective stocks; permanent bonds
An increase in the value of the yen against the U.S. dollar can cause the Japanese automaker Toyota to either _____________ on its U.S. sales.A. shed industry share or alleviate its profit marginB. obtain industry share or alleviate its profit marginC. shed sector share or increase its profit marginD. obtain sector share or rise its profit margin
Define each of the following in the context of a business cycle:A. PeakB. ContractionC. TroughD. Expansion
A top is the transition from the end of an development to the start of a contractivity. A tturbulent occurs at the bottom of a recession simply as the economic situation enters a recovery. Contractivity is the period from peak to tstormy. Expansion is the period from tunstable to height.
What is typically true of corporate dividend payout prices in the beforehand stages of an industry life cycle? Why does this make sense?
Companies tend to pay very low, if any kind of, dividends early on in their company life cycle since these firms should reinvest as a lot capital as possible in order to prosper.
1+ Real Interemainder Rate = 1+ Nominal Interemainder Rate /1+ Inflation Rate1 + r= 1.05 / 1.03= 1.0194 --> r= 1.94%
Deployment Specialists pays a existing (annual) dividend of $1 and also is supposed to thrive at 20% for two years and then at 4% afterwards. If the compelled return for Deployment Specialists is 8.5% what is the intrinsic value of their stock?
Intrinsic value= V0=D1 / 1 + k + D2 / (1 + k)^2+...+DH + PH / (1 + k)H= ($1× 1.2 / 1 + 0.085) +( $1× 1.2 ^2/ (1 + 0.085)2 )+ ($1×1.2^2 * 1.04 / (0.085-0.04)×(1 + 0.085)^2)=$30.60(LOOK AT BOOK FOR BETTER HELP)
A debenture is _________. A. secured by other securities held by the firmB. secured by devices owned by the firmC. secured by building owned by the firmD. unsecured
D. unsecured
Inflation-indexed Treasury securities are frequently called ____. A. PIKsB. CARsC. TIPSD. STRIPS
C. TIPS
To earn a high rating from the bond rating agencies, a agency would certainly desire to have:I. A low times-interest-earned ratioII. A low debt-to-equity ratioIII. A high quick ratioA. I onlyB. II and also III onlyC. I and III onlyD. I, II, and also III
You buy a TIPS at worry at par for $1,000. The bond has actually a 3% coupon. Inflation transforms out to be 2%, 3%, and also 4% over the next 3 years. The full annual coupon income you will receive in year 3 is _________. A. $30B. $33C. $32.78D. $30.90
Define the following forms of bonds:A. Catastrophe BondsB. Zero-Coupon BondsC. Convertible BondsD. Junk bonds
A. Generally issued by an insurance agency. They are similar to an insurance policy in that the investor receives coupons and par worth, yet takes a loss in part or every one of the major if a major insurance insurance claim is filed versus the issuer. This is offered in exreadjust for better than normal coupons.B. Zero-coupon bonds are bonds that pay no coupons but carry out pay a par value at maturity. C. Convertible bonds may be exchanged, at the bondholder"s discretion, for a mentioned variety of shares of stock. Convertible bondholders "pay" for this option by accepting a reduced coupon rate on the defense.D. Those rated BBB or above (S&P, Fitch) or Baa and over (Moody"s) are taken into consideration investment grade bonds, while lower-rated bonds are classified as speculative grade or junk bonds.
What would certainly be the most likely effect on the yield to maturity of a bond resulting from:A. An boost in the firms" times-interest-earned ratioB. An increase in the firms" debt-equity ratioC. An increase in the firms" quick ratio
A. YTM will drop since the company has actually more money to pay the interemainder on its bonds. B. YTM will rise since the company has even more debt and the threat to the existing bondholders is currently raised. C. YTM will certainly decrease because the firm has either fewer present liabilities or a boost in assorted present assets.
A coupon bond paying semiannual interemainder is reported as having actually an ask price of 117% of its $1,000 par worth. If the last interemainder payment was made one month back and the coupon payment is 6% what is the invoice price of the bond?
Semi-yearly coupon = $1,0006%
0.5= $30. Accrued Interemainder = (Annual Coupon payments / 2) * (Days since Last coupon payment / Days seperating coupon payment)= $30 * (30/182) = $4,945At a price of 117% the invoice price is = $1,170 + $4,945 = $1,174.95
A zero coupon bond with a confront value of $1,000 and maturity of 5 years sells for $746.22. What is the yield to maturity? What will certainly take place to its yield of maturity if its price drops immediatly to $730.
Using a financial calculator, PV = -746.22, FV = 1,000, n=5, PMT= 0. The YTM is 6.0295%.Using a financial calculator, PV = -730.00, FV = 1,000,n=5, PMT= 0. The YTM is 6.4965%.
Two bonds have similar times to maturity and also coupon rates. One is callable at 105 the other is at 110. Which must have actually the higher yield to maturity? Why?
The bond callable at 105 need to sell at a reduced price bereason the call provision is more valuable to the firm. Therefore, its yield to maturity have to be higher.

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Consider a bond through 10% coupon with a yield to maturity = 8%. If the bonds YTM continues to be constant, then in one year will certainly the bond price be higher, reduced, or unchanged? Why?
The bond price will be reduced. As time passes, the bond price, which is currently over par worth, will certainly approach par.
You buy an eight-year bond that has a 6% coupon (passist annually). In one year, promised returns to maturity have increased 7%. What is your holding duration return?
Using a financial calculator, FV = 1,000, n=7, PMT= 60, and also i=7provides us a offering price of $946.11 this year.Holding period rerotate = -$1,000 + $946.11 + 60 / $1,000 =.0061 = .61%
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