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3 years ago

15

A $1000 bond with a coupon rate of 6.2% paid semi annually has eight years to maturity and a yield to maturity of 8.3%. If inter

est rates rise and the yield to maturity increases to 8.6% what will happen to the price of the bond?
A) the price of the bond will rise by $15.78,

B) the price of the bond will fall by $18.93,

C) the price of the bond will fall by $15.78,

D) the price of the bond will not change

1 answer:

mel-nik [20]3 years ago

7 0

Answer:

Correct option is (C)

Explanation:

Given:

Face value of bond (FV) = $1,000

Coupon rate = 6.2% annual and 6.2 / 2 = 3.1% semi annual

Coupon payment (pmt) = 0.031 × 1,000 = $31

Maturity period (nper) = 8×2 = 16 periods

Rate = 8.3% annual or 8.3 / 2 = 4.15%

Present value of bond can be computed using spreadsheet function =PV(rate,nper,pmt,FV)

Present value of bond when yield is 8.3% is $878.99

If ytm increases to 8.6% annual or 8.6 / 2 = 4.3% semi annual, then present value of bond will be $863.22 (using spreadsheet function again)

It can be seen that as ytm increased from 8.3% to 8.6%, price of bond fell by $15.77 approximately (878.99 - 863.22)

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Missing Information:

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Answer:

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--to record the purchase ---

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DM quality variance 2,000 debit

Raw materials Inventory 250,000 debit

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130,000 pounds x $2.00 (standard) = $260,000

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standard: 21,000 x 6 = 124,000 pounds x $2 = 248,000

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rate variance 1,640 unfavorable

efficiency variance:

21,000 x 2 hours = 42,000 hours x $10 = 420,000

actual 41,000 x $10 = 410,000

favorable 10,000

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