suppose that you believe that interest rates are going to fall in the future and you...

suppose that you believe that interest rates are going to fall in the future and you must choose between two bond investment, options a) and b) which of the two bond investment options would you select and why?

A) Buy 10 bonds with 6% coupon rate, thirty-years to maturity, $100 face value, and pay semi annual coupons

B) buy 1 bond with a 4% coupon rate, thirty-years to maturity, $1,000 face value, and pay semi annual coupons

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

You believe the price of Freeze Frame Co. stock is going to fall, so you short...

You believe the price of Freeze Frame Co. stock is going to fall, so you short 650 shares at a price of $63. The initial margin is 55 percent. Ignore dividends. a. Construct the equity balance sheet for the original trade. (Input all amounts as positive values.) b-1. Construct an equity balance sheet for a stock price of $59 per share. (Input all amounts as positive values.) b-2. What is your margin? (Do not round intermediate calculations. Enter your answer...

You believe the stock in Freeze Frame Co. is going to fall, so you short 1,000...

You believe the stock in Freeze Frame Co. is going to fall, so you short 1,000 shares at a price of $57. The initial margin is 55 percent. 1. Construct the equity balance sheet for the original trade. (Input all amounts as positive values. Omit the "$" sign in your response.) Assets Liabilities and account equity Proceeds from sale $ Short position $ Initial margin deposit Account equity Total $ Total $ 2-a. Construct an equity balance sheet...

You believe the stock in Freeze Frame Co. is going to fall, so you short 700...

You believe the stock in Freeze Frame Co. is going to fall, so you short 700 shares at a price of $80. The initial margin is 60 percent. 1. Construct the equity balance sheet for the original trade. (Input all amounts as positive values. Omit the "$" sign in your response.) Assets Liabilities and account equity Proceeds from sale $ Short position $ Initial margin deposit Account equity Total $ Total $ 2-a. Construct an...

You believe the stock in Freeze Frame Co. is going to fall, so you short 600...

You believe the stock in Freeze Frame Co. is going to fall, so you short 600 shares at a price of $72. The initial margin is 50 percent. Construct the equity balance sheet for the original trade. Now construct equity balance sheets for a stock price of $63 and a stock price of $77. What is your margin at each of these stock prices? What is your holding period return if you cover your short position at each of these...

Suppose firms expect future output to be higher and future interest rates to be higher. Given...

Suppose firms expect future output to be higher and future interest rates to be higher. Given this information, how will firms alter investment in the current period? Explain.

2. Given expectations Ee of future exchange rates, when foreign interest rate fall significantly, investors will...

2. Given expectations Ee of future exchange rates, when foreign interest rate fall significantly, investors will ____ domestic assets, _____ domestic currency, ____ foreign currency, and _____ foreign assets. A) sell; sell; buy; buy B) sell; buy; sell; buy C) buy; sell; buy; sell D) buy; buy; sell; sell Can you explain it in detail?

2. Suppose that the current and expected future short-term interest rates are given by: it =...

2. Suppose that the current and expected future short-term interest rates are given by: it = 0:05 ie t+3 = 0:03 ie t+1 = 0:05 ie t+4 = 0:03 ie t+2 = 0:04 And suppose that the liquidity premiums on bonds with maturity on 1 through 3 years are: l1t = 0:00 l4t = 0:02 l2t = 0:01 l5t = 0:025 l3t = 0:015 (a) Find the yields on the 2-, 3-, 4-, and 5-year bonds implied by the expectations...

A fall in interest rates is most likely to decrease the interest rate risk of a...

A fall in interest rates is most likely to decrease the interest rate risk of a ______. A. support tranche B. Z-tranche C. PAC tranche

Evidence shows that interest rates are procyclical (interest rates rise during economic expansions, and fall during...

Evidence shows that interest rates are procyclical (interest rates rise during economic expansions, and fall during economic contractions). Explain the statement above using either the S & D for Bonds or the S & D for Credit model in your answer, showing (you need to provide a drawing or graph with the axes properly labeled and equilibrium identified) what happens to the price of bonds, the quantity of bonds and interest rates both during an expansion and during a contraction.

1. Suppose the data on today’s and future expected interest rates is given: Time Yield on...

1. Suppose the data on today’s and future expected interest rates is given: Time Yield on 1-year T-bond Today 1.2% Next year 1.2% (expected) 2 years from today 1.6% (expected) 3 years from today 2.0% (expected) a) Calculate today’s interest rates on 2-year, 3-year and 4-year bonds using the expectations hypothesis. Use these yields to construct a yield curve and plot it. What kind of shape does it have? b) Now, suppose term premiums for 2-year, 3-year and 4-year bonds...

Subjects