Question

6. A one-year risk free bond with a face value of $500 has a price of $470. The expected inflation rate is 2%. What is the re
0 0
Add a comment Improve this question Transcribed image text
Answer #1

Nominal interest rate is yield to maturity for given bond

470=500/(1+r)

1+r=500/470

Nominal Interest Rate=0.0638=6.3829%

Expected inflation rate=2%

Real Interest Rate=Nominal Interest Rate-Inflation Rate=6.3829%-2%=4.3829%

Add a comment
Know the answer?
Add Answer to:
6. A one-year risk free bond with a face value of $500 has a price of...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • 1. A risk-free bond has a $200 face value in one year and the nominal interest...

    1. A risk-free bond has a $200 face value in one year and the nominal interest rate is 7%. What is the price of the bond today? 2. A risk-free bond has a face value of $500 in one year, the price of the bond today is $472. a. What is the rate of return (yield) on the bond? b. If the expected rate of inflation is 2%, what is the real interest rate? 3. a. Show the supply and...

  • 2. A risk-free bond has a face value of $500 in one year, the price of...

    2. A risk-free bond has a face value of $500 in one year, the price of the bond today is $472. a. What is the rate of return (yield) on the bond? b. If the expected rate of inflation is 2%, what is the real interest rate? 3. a. Show the supply and demand for a given bond and show what will probably happen if the bond’s credit rating is downgraded from AA to A. b. What happens to the...

  • A zero coupon bond has a face value of $1,000 and matures in 6 years. Investors...

    A zero coupon bond has a face value of $1,000 and matures in 6 years. Investors require​ a(n) 7.2 % annual return on these bonds. What should be the selling price of the​ bond? If the nominal rate of interest is 12.21 % and the real rate of interest is 8.76 % what is the expected rate of​ inflation? A Ford Motor Co. coupon bond has a coupon rate of 6.75​%, and pays annual coupons. The next coupon is due...

  • 1. (Coupon bond price) Consider a 20 year bond that sells at face value (its price...

    1. (Coupon bond price) Consider a 20 year bond that sells at face value (its price is equal to the final payment you get for it in 20 years). The nominal interest rate is expected to be fixed at 4% and is equal to the implicit rate on the bond. Consider now a bond with the following characteristics: maturity equal to 5 years, annual coupon payments equal to 100 dollars and face value of 1000 dollars. iii) If the nominal...

  • 3) Consider a 5-year risk-free bond with annual coupons of 6% and a face value of...

    3) Consider a 5-year risk-free bond with annual coupons of 6% and a face value of $1,000. a) If this bond is currently priced at $1,068.94, what is its yield to maturity? b) If the yield to maturity on this bond increased to 5.2%, what would be the new price?

  • 1) You need to determine the market value of a $1,000 face value bond maturing in...

    1) You need to determine the market value of a $1,000 face value bond maturing in 5 years. The market yield (interest rate) for this type of bond is 3.1%. What is its market value? (Round to the nearest penny). 2) A year ago, you purchased a $1,000 face value bond for $1024. A year later you sold the bond for $1,007 after receiving a coupon payment of $55. What was your rate of capital gain? (Answer in tenth of...

  • 1) You need to determine the market value of a $1,000 face value bond maturing in...

    1) You need to determine the market value of a $1,000 face value bond maturing in 5 years. The market yield (interest rate) for this type of bond is 3.1%. What is its market value? (Round to the nearest penny). 2) A year ago, you purchased a $1,000 face value bond for $1024. A year later you sold the bond for $1,007 after receiving a coupon payment of $55. What was your rate of capital gain? (Answer in tenth of...

  • - One way to estimate a corporate bond yield spread is to take the difference between...

    - One way to estimate a corporate bond yield spread is to take the difference between a corporate bond yield and a treasury bond yield - A stock with a beta coefficient of 1.0 means that the stock is a stock of average risk - A simple link between expected inflation, nominal risk-free interest rate and real risk-free interest rate is that the nominal risk-free interest rate is equal to the sum of the real risk-free interest rate and the...

  • Question 1: A $1,010 face value bond is selling in the market place for $934. It...

    Question 1: A $1,010 face value bond is selling in the market place for $934. It matures in 3 years. If keep to maturity, what is the bond's yield to maturity? Question 2: A banker must earn at least a 2.7% return after expected inflation on short term loans. The inflation rate for the past 6 months has averaged 3.5%. The expected inflation rate for the next twelve months is 7.3%. Nominal interest rates for short term loans were 7.1%...

  • 6 Suppose you purchase a 3-year, 5-percent coupon bond at par and hold it for two...

    6 Suppose you purchase a 3-year, 5-percent coupon bond at par and hold it for two years. During that time, the interest rate falls to 4 percent. Calculate your annual holding period return. Instructions: Enter your response rounded to two decimal places Holding period return A 10-year zero-coupon bond has a yield of 6 percent. Through a series of unfortunate circumstances, expected inflation rises from 2 percent to 3 percent. The face value of the bond is $100 a. Assuming...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT