\"Increase or decrease\" ? Please help me get this answer right, thankyou so muc
ID: 2583569 • Letter: #
Question
"Increase or decrease" ?
Please help me get this answer right, thankyou so much!! courses.aplia.com Aplia: Student Q Google Home GradesPersonalized Reviews Discussion Course Materials Bonds and Their Valuation Graded Assignment Read Chapter 7 Back to Assignment Due Saturday 12.02.17 at 11:15 P Attempts:4 2 Average: 3/4 4 Valuing semiannual coupon bonds Aa Aa Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by haif. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon U.S. Treasury note with five years to maturity (YTM) has a coupon rate of 5%. The yield to maturity of the bond is 7.70%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: O $756,228.57 $889,680.67 $560,498.82 O $1,067,616.80 Based on your calculations and understanding of semiannual coupon bonds, complete the following statement: Assuming that interest rates remain constant, the T-note's price is expected to increase increase decrease Flash Player MAC 27,0,0,38 03 3.341 2004-2015 Aplia All rights reserved 2013 Cengage Learning except as noted. All rights reserved Grade It Now Continue without saving
Explanation / Answer
Answer would be decrease in the T notes price.
Consider the following example :
a $1,000 face value bond has a coupon interest rate of 5%. No matter what happens to the bond's price, the bondholder receives $50 that year from the issuer. However, if the bond price climbs from $1,000 to $1,500, the effective yield on that bond changes from 5% to 3.33%. If the bond price falls to $750, the effective yield is 6.67%.
Since effective yield is now 7.75% this means price must have decreased of the bond.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.