60.1K

Verified Solution

Link Copied!

Please answer questions 10 and 11! Thank You :)

Question 10 (6 points) Which of the following statements is correct? If market rates do not change, the price of a bond selling at a premium increases over time If interest rates are greater than zero, it is possible for a zero-coupon bond to sell at a premium (i.e. for more than par value If a bond's yield to maturity is greater than its coupon rate, the bond will sell at a premium 6 If market rates do not change, the price of a bond selling at a discount increases over time All of the above statements are false 12 Question 11 (6 points) 15 The government of Mont-Ecar-Low issued a $1,000 par value bond with a coupon rate of $150 per year, but this bond would not mature for 1,000,000,000,000 years. If investor's required rate of return on this bond is 15 percent, can you calculate the expected market price of this bond and if yes, what is the expected market price? Yes, an expected market price can be calculated, but the only way is to use a large computer that can add up the present value of 1,000,000,000,000 coupon payments of $150 each and the present value of the par value of the bond. No, because all of today's investors will be dead before the bond matures. Yes, the current value of the bond is within rounding error of zero because using 15% to discount for 1,000,000,000,000 years reduces almost any dollar amount to zero No, because a calculator will not accept 1,000,000,000,000 for the number of compounding periods and 1,000,000,000,000 years is not on any chart of discounting factors. : Yes, because the coupon rate of 15% is equal to the discount rate of 15%, the bond will

Answer & Explanation Solved by verified expert

See Answer