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tester [92]
2 years ago
15

Suppose you buy a 7 percent coupon, 20-year bond today when it’s first issued. If interest rates suddenly rise to 15 percent, wh

at happens to the value of your bond?
Business
1 answer:
Mariana [72]2 years ago
5 0

Answer: The value of the bond will decrease

Explanation:

The Interest rate has a negative inverse relationship with the value of a bond . When the interest rate increases the value of a bond decreases and when interest rate decreases  the bond value increases. Bonds with low coupon rates tend to be more sensitive to interest rate changes this is known has coupon effect.

Bonds with long time frame (long term bonds), they also  tend to be are more sensitive to changes in the interest rate this is known has the maturity effect.  Therefore a change in the interest rate will cause a huge change in the value of a Bond with low coupon rate and long time period.

The Bond is a 20 year Bonds which qualifies it to be a long term bond and the coupon Rate is 7%, with these facts and knowing that  long term bonds are more sensitive to interest rate changes we can conclude that the sudden increase of the interest rate to 15%  will cause a huge decrease in the value of the bond

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A

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7 0
3 years ago
(04.03 LC)
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Answer:

C. Safe driving

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2 years ago
Which of the Ten Principles of Economics does welfare economics explain more fully?A. The cost of something is what you give up
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8 0
3 years ago
Leather Shop earned net income of $ 71,000 after deducting depreciation of $ 5,000 and all other expenses. Current assets decrea
Thepotemich [5.8K]

Answer:

$89,000

Explanation:

Given that,

Net Income = $71,000

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Net Cash from Operating Activities:

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7 0
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The sea wharf restaurant would like to determine the best way to allocate a monthly advertising budget of $1000 between newspape
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It would get $250 from the overall budget.
5 0
2 years ago
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