Question
In: Finance
If an investor has a 6 year investment horizon and chooses a bond with a 10...
If an investor has a 6 year investment horizon and chooses a bond with a 10 year duration then if interest rates increase then
A) the bond's sale price increase will be more than the lost reinvestment income.
B) the bond's sale price drop will be more than the extra reinvestment income.
C) the bond's sale price drop will be less than the extra reinvestment income.
D) the bond's sale price increase will be less than the lost reinvestment income.
Solutions
Expert Solution
Answer (C) the bond's sale price drop will be less than the extra reinvestment income.
Bonds have inverse relationship with intresest rate, if interest rate increases bond price will fall and if interest rate decreases bond price will increase. As buyer can easily prchase bond's for the interst rate increase so one need to sell bond's at a discount value.
jeff jeffy answered 2 years agoRelated Solutions
An investor with an investment horizon of 1.6 year purchases a 5% coupon bond with 2...
An investor with an investment horizon of 1.6 year purchases a
5% coupon bond with 2 years to maturity and a face value of $100?
The bond is trading at a yield of 5%. Coupons are paid
semi-annually. What is this investor's duration gap?
Assume semi-annual compounding. Round your answer to 4 decimal
places.
Suppose that an investor with a 3-year investment horizon is considering buying an 8-year 6% coupon...
Suppose that an investor with a 3-year investment horizon is
considering buying an 8-year 6% coupon bond selling at
par (semi-annual coupon payments). The investor
expects that she can reinvest the coupon payments at an annual
interest rate of 7% and that at the end of the investment horizon
all bonds will be selling to offer a YTM of 9%.
How much is the coupons & interest earned on reinvesting
these coupon by the end of 3-yr?
What is the...
Suppose that an investor with a 3-year investment horizon is considering buying an 8-year 6% coupon...
Suppose that an investor with a 3-year investment horizon is
considering buying an 8-year 6% coupon bond selling at par
(semi-annual coupon payments). The investor expects that she can
reinvest the coupin payments at an annual interest rate of 7% and
that at the end of the investment horizon all bonds will be selling
to offer a YTM of 9%.
How much is the coupons & interest earned on reinvesting
these coupon by the end of 3-yr?
What is the...
Suppose that an investor with a 3-year investment horizon is considering buying an 8-year 6% coupon...
Suppose that an investor with a 3-year investment horizon is
considering buying an 8-year 6% coupon bond selling at
par (semi-annual coupon payments). The investor
expects that she can reinvest the coupin payments at an annual
interest rate of 7% and that at the end of the investment horizon
all bonds will be selling to offer a YTM of 9%. How much is the
coupons & interest earned on reinvesting these coupon by the
end of 3-yr? Round your answer...
Assume you have a 1 year investment horizon. A bond has 10% year coupon rate and...
Assume you have a 1 year investment horizon. A bond has 10% year
coupon rate and pays the coupon once per year. The bond matures in
10 years and is priced to yield 8% this year. If you expect the
yield to maturity on the bond to be 7% at the beginning of the next
year, what is your holding period return, assuming you have
received the coupon for this year.
Suppose that an investor has 8-year investment horizon. The investor is considering a 15-year semi-annual coupon...
Suppose that an investor has 8-year investment horizon. The
investor is
considering a 15-year semi-annual coupon bond selling at $990 (par
value is
$1000) and having a coupon rate of 4%. The investor expectations
are as follows:
• The first 4 semi-annual coupon payments can be reinvested from
the time of
receipt to the end of the investment horizon at an annual interest
rate of 4%,
• the first 8 semi-annual coupon payments can be reinvested from
the time of...
10. Consider an investor with a four-year investment horizon, evaluating an income producing property. The property...
10. Consider an investor with a four-year investment horizon,
evaluating an income producing property. The property may currently
be purchased for $5,000,000. Last year's NOI of $450,000 is
projected to grow at 4% annually into the foreseeable future. At
the end of the investor's holding period, cap rates are expected to
be 8.00% on properties of this nature. Decompose the expected
return into its component pieces. Specifically, what percentage of
the promised return is attributable to:
1. Periodic Cashflows (NOI):...
You are an investor with an investment horizon of one year and a certain degree of...
You are an investor with an investment horizon of one year and a
certain degree of risk aversion. Your task is to determine the
efficient frontier in the case of two risky securities and one
risk-free (T-bill) security and select the optimal portfolio
depending on your risk-aversion parameter. You need to do your work
on an EXCEL SPREADSHEET!
*Note: select two risky securities and one risk-free
(T-bill) security OF YOUR CHOICE.
1- Choose
A well-diversified risky bond B represented by...
Suppose that an investor with a 5 year investment horizon is considering purchasing a 7 year,...
Suppose that an investor with a 5 year investment horizon is
considering purchasing a 7 year, 9% coupon bond selling at par. The
investor expects that he can reinvest the coupon at an annual
interest rate of 9.4% and that at the end of the investment horizon
5 year bond will be selling to offer a yield to maturity of 11.2%.
What is the total return for this bond?
An investor with an investment horizon of two years has two investment opportunities: 1.The first investment...
An investor with an investment horizon of two years has two
investment opportunities:
1.The first investment opportunity is to invest in two-year
Treasury bond, yielding 5% per year.
2.The second opportunity is to invest in one-year Treasury bond
and then after one year, to roll over an investment into another
one year bond. If one year Treasury bond yields 4% and assuming
that Expectation Theory holds what should one year bond yield one
year from now? Explain fully and show...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- The Facts: Ann and Bill decided to start a coffee shop. They agreed Bill would provide...
- MARGI sells different types of wine. Customers place orders to the most popular “Summer Wine” at...
- A firm's bonds have a maturity of 8 years with a $1,000 face value, have an...
- Naive reasoning suggests that a string theory vacuum with cosmological constant Lambda1 is always unstable as...
- I. Design and code a class Rectangle that has the following properties: Two private members double...
- A bond has a $1,000 par value, 10 years to maturity, and an 8% annual coupon...
- The following are the monthly rates of return for Madison Cookies and for Sophie Electric during...
ADVERTISEMENT