Please help me solve these problem and explain. Thank you 3) A coupon bond has a
ID: 1225025 • Letter: P
Question
Please help me solve these problem and explain. Thank you
3) A coupon bond has an annual coupon of $75, a par value of $1000, and a market price of $900. Its current yield equals ?
A)7.50%
B)8.33%
C) Its yield to maturity
D) Not enough information has been provided to calculate the current yield for this bond
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6) How are TIPS adjusted for inflation?
A) The interest rate is adjusted for inflation during each period
B) The principal is adjusted once the bond reaches maturity
C) The principal is adjusted for inflation each period
D) The interest rate is adjusted once the bond reachs maturity
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7) During the financial panic in late 2008, the average risk premium rose because
A) Investors feared a revival of inflation
B) Large tax increases in the United State reduced corporate profit and led to fears of increased default
C) Of the liquidity crisis, particularly among so called shadow banks
D) Of fraud in the market for municipal bonds
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9) The Segmented markets theory
A) Explains upward-sloping yield curves as resulting from the demand for long term bonds being high relative to the demand for short term bonds
B) Explains upward-sloping yield curves as resulting from the demand for long term bonds being low relative to the demand for short term bonds
C) Explains upward-sloping yield curves as resulting from the favorable tax treatment of long term bonds
D) Is unable to account for upward sloping yield curves
Explanation / Answer
A) The formula of current yield is bonds annual coupon divided by its current price(not by the face value).
Current yield = $75/$900 = 8.33%
Answer is B
B) when the TIPS works,it shows:
If inflation goes up, your principal amount will be upwardly adjusted, too. And since your interest payment is based on this increased principal amount, your interest payment adjusts upward, too.
Answe is C
C) its answer is A
D) Segmented theory is an interest rate theory where the no correlation between the short amd long term interest rates so the term perimum the long term bonds being high relative to short one answer is A