Which bond has a larger percentage change in value

Assignment Help Macroeconomics

Reference no: EM13207043

Bond A pays $8,000 in 20 years. Bond B pays $8,000 in 40 years. (To keep things simple, assume these are zero-coupon bonds, which means the $8,000 is the only payment the bond holder receives.)

a. If the interest rate is 3.5 percent, what is the value of each bond today? Which bond is worth more? Why? (Hint: You can use a calculator, but the rule of 70 should make the calculation easy.)

b. If the interest rate increases to 7 percent, what is the value of each bond? Which bond has a larger percentage change in value?

c. Based on the example above, complete the two blanks in this sentence: "The value of a bond [rises/falls] when the interest rate increases, and bonds with a longer time to maturity are [more/less] sensitive to changes in the interest rate."

Reference no: EM13207043

Questions Cloud

Define what range of accelerating voltages : What range of accelerating voltages would be required to cover the mass range between 16 and 625, for singly charged ions, if the field strength is held constant?

Find at least three combinations of donuts and burritos : A consumer has a monthly budget of $100 for buying breakfast which he spends entirely on donuts (x) and breakfast burritos (y) from his favorite fast food restaurants. Donuts cost 50 cents each and Burritos cost $1 each.

Theory of motivation from a subjectivist-objectivist point : In other words, which parts of the theory of motivation come from an objectivist point of view? Which parts come from a subjectivist point of view?

Compute the voltage difference between two points : Calculate the voltage difference between two points of corroding iron differing only in their partial pressure of oxygen: 0.20atm of oxygen at one point and 0.0010atm of oxygen at the other

Which bond has a larger percentage change in value : Based on the example above, complete the two blanks in this sentence: "The value of a bond [rises/falls] when the interest rate increases, and bonds with a longer time to maturity are [more/less] sensitive to changes in the interest rate."

Depict the structure of the triacylglycerol : Give a balanced equation and show how much hydrogen would be needed to reduce the triacylglycerol completely

Summarize the main purpose and points of the event : Summarize the main purpose and points of the event. What was the speaker trying to communicate, explain, or express and what were the main ideas

State methylpentane is treated with soldium methoxide : Predict the predominant alkene product that would form when 2-bromo-2methylpentane is treated with soldium methoxide in methanol.

Calculate personal income and disposable personal income : Personal Interest Income 998.1 Personal Tax and Non-Tax Payments 1403.3 a. Calculate National Income b. Calculate Personal Income and Disposable Personal Income c. Calculate Gross National Product (GNP) d. Calculate Gross Domestic Product (GDP) e. Ca..

User Account

All Pages