Which bond would you expect to pay a higher interest rate
Question: For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain. a. a bond of the Canadian government or a bond of an East European government For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain. a. a bond of the U.S. government or a bond of an Eastern European government. b. a bond that repays the principal in year 2020 or a bond that repays the principal in year 2040. c. a bond from Coca-Cola or a bond from a software company you run So, higher interest rates mean lower prices for existing bonds. If interest rates decline, however, bond prices of existing bonds usually increase, which means an investor can sometimes sell a bond for more than the purchase price, since other investors are willing to pay a premium for a bond with a higher interest payment, also known as a coupon. For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain a. a bond of the Singapore government or a bond of an Indonesian government b. a bond that repays the principal in year 2020 or a bond that repays the principal in year 3. 2040 a bond from Unilever Company or a bond from a software company you run in your c. garage The following information a. The US bond, because there is much more confidence in the ability of the US government to honour its debt commitments. b. the bond that matures (repays) in 2030, because you need to pay a higher interest rate in order to justify holding someones money for a longer period of time
A longer-maturity bond will normally pay a higher interest rate than a shorter-maturity bond in order to entice investors who would rightly be concerned about the possibility of a) interest rate risk, and b) inflation risk.
The 20-year bond would likely pay a higher interest rate than would the 6-month bill. The future is uncertain and therefore more risky for a 20-year bond than for a 6-month bill. Step 1 of 5 a) The bond of an eastern European government would likely to pay a higher interest rate than the bond of the government because there would be a greater risk of default perceived from the bonds of Eastern European government. A longer-maturity bond will normally pay a higher interest rate than a shorter-maturity bond in order to entice investors who would rightly be concerned about the possibility of a) interest rate risk, and b) inflation risk. For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain. a. a bond of the U.S. government or a bond of an Eastern European government b. a bond that repays the principal in year 2020 or a bond that repays the principal in year 2040 c. a bond from Coca-Cola or a bond from a software company you run in your garage d. a bond issued by the federal Finding the best bond funds for rising interest rates and inflation can be easy if you know what types of funds to look for. Now that interest rates are rising, and may be for the foreseeable future, learning how to invest for higher rates is a smart move for your portfolio. There is another important variable that you are leaving out of this equation: credit rating. So for the sake of this discussion let's assume that all Bonds in question have the highest credit rating possible for each category. They would rank in
Some ways to lower your interest rate include paying a bigger deposit on the home When applying for a bond, one of your most important goals should be to
There is another important variable that you are leaving out of this equation: credit rating. So for the sake of this discussion let's assume that all Bonds in question have the highest credit rating possible for each category. They would rank in 1 Answer to Hi: Which bond would you expect to pay a higher interest rate? Explain why. US Government/East European Coca-Cola-company run from your garage Issued by federal or state bond Thank you - 188806
So if you own a bond that is paying a 3% interest rate (in other words, yielding 3 %) and a duration of five years and interest rates increase by 1%, the bond's price will decline If, for example, you expect rates to rise, it may make sense to focus on Investors should be urged to consult their tax professionals or financial
24 Jun 2015 The annual rate of interest paid on the bond is known as the coupon. buy a municipal bond that might not be sold at the amount it was issued. However, this does not guarantee higher revenues as drivers could switch to non-toll roads. They are more likely to invest in municipal bonds because of the 23 Sep 2018 Further, is there an interest rate at which it might make sense for me assuming that you are in a higher tax bracket now than you expect to be in the future. Alternatively, if you had paid off your mortgage using your bonds, That is where you have an interest rate that may be above zero but it is lower is a private sector firm, which you would normally expect to try to maximise its profits . parked at the central bank involve paying the ECB's negative deposit rate. Buying a government bond might be less costly, even if there is a negative return. Here's an overview of what you should expect as interest rates continue to rise, When bonds pay more, there are more people interested in buying them, and 2 Nov 2016 It was widely believed that if interest rates did dip below zero, even if by a very be no alternative to paying a negative rate on bank deposits and bonds. these assets are expected to keep rising in value, and because they 3 Aug 2019 Overall, lower interest rates should cause a rise in Aggregate Demand (AD) = C + I + G + X – M. Lower interest rates help increase (C), (I) and 16 Oct 2019 Think about it--if one bond offers you a higher annual payment, all else equal, why would you choose another? Because older bonds' interest
So, higher interest rates mean lower prices for existing bonds. If interest rates decline, however, bond prices of existing bonds usually increase, which means an investor can sometimes sell a bond for more than the purchase price, since other investors are willing to pay a premium for a bond with a higher interest payment, also known as a coupon.
23 Sep 2018 Further, is there an interest rate at which it might make sense for me assuming that you are in a higher tax bracket now than you expect to be in the future. Alternatively, if you had paid off your mortgage using your bonds, That is where you have an interest rate that may be above zero but it is lower is a private sector firm, which you would normally expect to try to maximise its profits . parked at the central bank involve paying the ECB's negative deposit rate. Buying a government bond might be less costly, even if there is a negative return. Here's an overview of what you should expect as interest rates continue to rise, When bonds pay more, there are more people interested in buying them, and 2 Nov 2016 It was widely believed that if interest rates did dip below zero, even if by a very be no alternative to paying a negative rate on bank deposits and bonds. these assets are expected to keep rising in value, and because they 3 Aug 2019 Overall, lower interest rates should cause a rise in Aggregate Demand (AD) = C + I + G + X – M. Lower interest rates help increase (C), (I) and
The coupon rate on a bond vis-a-vis prevailing market interest rates has a large impact on how bonds are priced. If a coupon is higher than the prevailing interest rate, the bond's price rises; if