Exam 6: Bonds, Bond Prices, and the Determination of Interest Rates

Suppose that general business conditions improve, and at the same time, wealth increases.Based on this information, we know that:

As bond prices increase:

Calculate the price of a $1,000 face value bond that offers a $45 annual coupon, and has six years to maturity, when the interest rate is 6.0% (0.060).

A decrease in expected inflation for any given nominal interest rate will cause:

The size of the bond dealer's spread is mainly a function of:

The price of a coupon bond can best be described as:

The larger the bond dealer's spread:

In the late 1990s, the U.S.government ran a surplus for the first time in decades.It instituted a buyback program, whereby the Treasury bought outstanding government bonds.How would this program affect the bond market price, yield, and quantity of bonds? How might it affect the liquidity of government bonds?

During economic recessions, interest rates may decrease or increase.This question asks you to analyze two recent U.S.recessions: (i) 1990-91 recession (interest rates increased) (ii) 2001 recession (interest rates decreased) What happened to bond prices during each of these recession? What do the interest rate data from these two recessions reveal about the shifts in bond demand and bond supply?

A 10-year Treasury note has a face value of $1,000, price of $1,200, and a 7.5% coupon rate.Based on this information, we know:

Consider a one-year corporate bond that has a 20% probability of default.The payoff on the bond is $2,000 if the corporation does not default.The interest rate is 10%.If buyers of this bond are risk-neutral, this bond will sell for:

Which of the following best expresses the formula for determining the price of a U.S.Treasury bill that matures n periods from now per $100 of face value when the interest rate is i?

A 30-year Treasury bond as a face value of $1,000, price of $1,200 with a $50 coupon payment.Assume the price of this bond decreases to $1,100 over the next year.The one-year holding period return is equal to:

The bond dealer's spread is:

Compute the change in the price of a five-year (until maturity) $1,000 face value zero-coupon bond that currently yields 7% when expected inflation increases from 3% to 4%.

In calculating the current yield for a bond:

How can a bond mutual fund promise a return of over 13% when the coupon rate of the bonds they are holding are just 7% and interest rates are falling?

At the time the government of Bulgrovia issued new bonds, they issued them at a price that reflected the risk-free rate because investors had no concerns regarding default risk, so did not require a risk premium.That risk-free rate was 4%.These bonds currently have one year to maturity and you notice the yield is 20%.Can you calculate the probability that the Bulgrovian government will default?

If the U.S.government's borrowing needs increase, all other factors constant:

The relationship between the price and the interest rate for a zero coupon bond is best described as: