Question
In: Finance
A bond has YTM=5% and coupon rate is 3%. This is a A. discount bond B....
A bond has YTM=5% and coupon rate is 3%. This is a A. discount bond B. par bond C. premium bond
Solutions
Expert Solution
Yield to Maturity = 5%
Coupon rate = 3%
Coupon rate < YTM, it means the bond is providing a lower return than what the market is providing, So, the investor does not show interest on the bond because he gets lower return and he invests in the market. To offset the arbitrage profit/loss the price of the bond will be lowered to extent where effective return on the investment equals the YTM.
If coupon rate > YTM, investor shows interest to purchase the bond which creates a demand on the bond. Increase in demand increases the price of the bond.
Since the YTM (5%) is higher than the coupon rate (3%), The bond will sell at discount.
Answer is Bond is Discount bond.
Option 'A' is correct
jeff jeffy answered 2 years agoRelated Solutions
A 5 year bond has a YTM of 7% and a coupon rate of 8%. Assuming...
A 5 year bond has a YTM of 7% and a coupon rate of 8%. Assuming
a par value of $1,000 and semi-annual coupon payments, what should
this bond be trading for?
Suppose the YTM is 5% for a 20-year $1000 bond with a 7% coupon rate and...
Suppose the YTM is 5% for a 20-year $1000 bond with a 7% coupon
rate and annual coupon payments. Its bond price is $____.
Instruction: Type ONLY your numerical answer in the unit of
dollars, NO $ sign, NO comma, and round to one decimal place. E.g.,
if your answer is $7,001.56, should type ONLY the number 7001.6,
NEITHER 7,001.6, $7001.6, $7,001.6, NOR 7002. Otherwise, Blackboard
will treat it as a wrong answer.
We have a bond such that, YTM = 6%, coupon rate = 5%, maturity = 10...
We have a bond such that, YTM = 6%, coupon rate = 5%, maturity =
10 years and it pays coupon semiannually. Now suppose YTM goes from
6% to 8%, how the bond price will change?
It will increase by $29.47
It will increase by $129.47
It will decrease by $129.47
It will decrease by $29.47
Bond P is a premium bond with a coupon of 5 percent , a YTM of...
Bond P is a premium bond with a coupon of 5 percent , a YTM of
6.64 percent, and 16 years to maturity. Bond D is a discount bond
with a coupon of 5 percent, a YTM of 9.56 percent, and also 16
years to maturity. If interest rates remain unchanged, what is the
difference in the prices of these bonds 5 year from now? (i.e.,
Price of Bond P - Price of Bond D) Note: Corporate bonds pay
coupons...
Bond B and Bond T both have 7% coupon rate, bond B has 3 years to...
Bond B and Bond T both have 7% coupon rate, bond B has 3 years
to maturity, bond T has 20 years to maturity. What is the
percentage change of in the price of each bond if interest rate
goes up by 2%? What is the percentage change if interest rate goes
down by 2%? Which bond has higher interest rate risk?
Bond J has a coupon rate of 5 percent. Bond K has a coupon rate of...
Bond J has a coupon rate of 5 percent. Bond K has a coupon rate
of 9 percent. Both bonds have 9 years to maturity, make semiannual
payments, and have a YTM of 7 percent.
If interest rates suddenly rise by 4 percent, what is the
percentage price change of Bond J? -23.65% -21.67% -22.67%
-23.67%
If interest rates suddenly rise by 4 percent, what is the
percentage price change of Bond K? 31.98% -21.57% -19.59%
-21.59%
If interest rates...
Bond J has a coupon rate of 5 percent. Bond K has a coupon rate of...
Bond J has a coupon rate of 5 percent. Bond K has a coupon rate
of 10 percent. Both bonds have 9 years to maturity, make semiannual
payments, and have a YTM of 6 percent.
A. If interest rates suddenly rise by 3 percent, what is the
percentage price change of Bond J?
B. If interest rates suddenly rise by 3 percent,
what is the percentage price change of Bond K?
C. If interest rates suddenly fall by 3 percent,...
Bond J has a coupon rate of 5 percent. Bond K has a coupon rate of...
Bond J has a coupon rate of 5 percent. Bond K has a coupon rate
of 10 percent. Both bonds have 7 years to maturity, make semiannual
payments, and have a YTM of 8 percent. If interest rates suddenly
rise by 5 percent, what is the percentage price change of Bond J?
If interest rates suddenly rise by 5 percent, what is the
percentage price change of Bond K? If interest rates suddenly fall
by 5 percent, what is the...
Bond J has a coupon rate of 5 percent. Bond K has a coupon rate of...
Bond J has a coupon rate of 5 percent. Bond K has a coupon rate
of 8 percent. Both bonds have 10 years to maturity, make semiannual
payments, and have a YTM of 7 percent.
If interest rates suddenly rise by 2 percent, what is the
percentage price change of Bond J?
-13.74%
-12.76%
-13.76%
-11.76%
If interest rates suddenly rise by 2 percent, what is the
percentage price change of Bond K?
-12.71%
-12.69%
-10.71%
18.95%
...
Bond J has a coupon rate of 5 percent. Bond K has a coupon rate of...
Bond J has a coupon rate of 5 percent. Bond K has a coupon rate
of 11 percent. Both bonds have 8 years to maturity, make semiannual
payments, and have a YTM of 6 percent.
If interest rates suddenly rise by 5 percent, what is the
percentage price change of Bond J?
If interest rates suddenly rise by 5 percent, what is the
percentage price change of Bond K?
If interest rates suddenly fall by 5 percent,...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- This is all one question, thank you so much in advance! You must evaluate the purchase...
- 10. Consider a market in which there is a monopoly manufacturer and a mo nopoly retailer....
- Write a function fun(x) that takes as input a positive number x and solves the following...
- Describe the principles and operations of movement sensors: Doppler-Effect Velocity sensor and Spring-Mass Accelerometor; State the...
- This is all one question, thank you so much in advance. The Bigbee Bottling Company is...
- For Questions 1-3: consider the following code: public class A { private int number; protected String...
- You are tasked with assessing the health department’s intervention program in preventing recurrence of acute alcohol...
ADVERTISEMENT