Business, 27.09.2019 05:00 anthony4034

Laurel, inc., and hardy corp. both have 7 percent coupon bonds outstanding, with semiannual interest payments, and both are priced at par value. the laurel, inc., bond has three years to maturity, whereas the hardy corp. bond has 16 years to maturity. if interest rates suddenly rise by 2 percent, what is the percentage change in the price of each bond? if rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of each bond?

Answers: 1

Show answers

Answers

Answer from: tatia65

Laurel: price will decrease by 4.73% if the rates increases by 2%

and it will increase by 5.66% if the rates decreases by 2%

Hardy:

+22.28% if rate fall by 2%

-16.05% if rate decrease by 2%

Explanation:

To solve for percentage we use $1 as face value

We solve calculating the preent value of the coupon payment using the present value of an ordinary annuity formula

and add it with the present value of maturity which is calculate with the present value of lump sum

Laurel Inc:

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C0.0350

time6.0000

rate0.0450

$0.035 \times \frac{1-(1+0.045)^{-6} }{0.045} = PV\\$

PV0.1805

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity 1.00

time 3.00

rate 0.09

$\frac{1}{(1 + 0.09)^{3} } = PV$

PV 0.77

PV c$0.1805

PV m $0.7722

Total$0.9527

0.9527 - 1 = - 0.0473

a decrease of 4.73 if rate increase by 2%

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C0.0350

time6.0000

rate0.0250

$0.035 \times \frac{1-(1+0.025)^{-6} }{0.025} = PV\\$

PV0.1928

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity 1.00

time 3.00

rate 0.05

$\frac{1}{(1 + 0.05)^{3} } = PV$

PV 0.86

PV c$0.1928

PV m $0.8638

Total$1.0566

5.66% increase if rates fall 2%

For Hardy Corp we do the same procedure

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C0.0350

time32.0000

rate0.0250

$0.035 \times \frac{1-(1+0.025)^{-32} }{0.025} = PV\\$

PV0.7647

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity 1.00

time 16.00

rate 0.05

$\frac{1}{(1 + 0.05)^{16} } = PV$

PV 0.46

PV c$0.7647

PV m $0.4581

Total$1.2228

22.28% if rate fall by 2%

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C0.0350

time32.0000

rate0.0450

$0.035 \times \frac{1-(1+0.045)^{-32} }{0.045} = PV\\$

PV0.5876

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity 1.00

time 16.00

rate 0.09

$\frac{1}{(1 + 0.09)^{16} } = PV$

PV 0.25

PV c$0.5876

PV m $0.2519

Total$0.8395

0.8395 - 1 = 0.1605

Answer from: Quest

you can lose ranking 2 ways.

1) you don't have enough points due to you expending them by asking questions/your answers are deleted.

2) your brainliest's expired. this means that brainliests, once they exceed the 30 day limit, expires. this is to ensure that you continue to contribute into the community at a constant rank if you want to continue to have/exceed the rank you have right now.

if you go to profile, and click "show more information" located on the bottom left of the box with your information (on top of the questions answered, questions asked, and friends), you will be given the following information (example):

member since : 02/13/2017, 18: 11

questions answered: 9741

questions asked: 162

no. of brainliest answers: 1575

brainliest answers in last 30 days: 10

warnings: 0 view

questions/answers reported: 2637

questions/answers incorrectly reported: 64

look at the "brainliest answers in the last 30 days". this is the one that will affect your rank other than your points. again, once your brainliest expires (was earned 31+ days ago), it will not be counted.

Answer from: Quest

It would be choice c (1040ez)

Another question on Business

Business, 22.06.2019 22:10

jackie's snacks sells fudge, caramels, and popcorn. it sold 12,000 units last year. popcorn outsold fudge by a margin of 2 to 1. sales of caramels were the same as sales of popcorn. fixed costs for jackie's snacks are $14,000. additional information follows: product unit sales prices unit variable cost fudge $5.00 $4.00 caramels $8.00 $5.00 popcorn $6.00 $4.50 the breakeven sales volume in units for jackie's snacks is

Answers: 1

Answer

Business, 23.06.2019 03:10

Identify whether each of the following statements best illustrates the concept of consumer surplus, producer surplus, or neither. statement consumer surplus producer surplus neither a local store was having a sale on textbooks, so i bought a used textbook for my brother. i sold a watch for $61, even though i was willing to go as low as $55 in order to sell it. even though i was willing to pay up to $116 for a used laptop, i bought a used laptop for only $110.

Answers: 1

Answer

Business, 23.06.2019 10:20

Teatro restoration, inc., begins renovating an old theater for urban edge productions, but after three months teatro demands an extra $250,000. urban edge agrees to pay. refer to fact pattern 13–4. if teatro says it is asking for the extra $250,000 because it has encountered extraordinary unforeseen difficulties that will add considerable cost to the project, the agreement is

Answers: 3

Answer

Business, 23.06.2019 15:00

Value economics capital scarcity opportunity cost wealth labor trade-offs standard of living good a. condition of not having enough resources to produce all the things people want b. alternative choices made by consumers in the marketplace c. sum of those economic products that are tangible, scarce, useful, and transferable d. tools, equipment, machinery, and factories used in the production of goods and services e. tangible item that is economically useful or that satisfies an economic want f. quality of life based on the ownership of the necessities and luxuries that make life easier g. people with all their efforts, abilities, and skills h. cost of the next-best alternative use of money, time, or resources when one choice is made rather than another i. study of how people try to satisfy their needs through the careful use of scarce resources j. worth that can be expressed in dollars and cents

Answers: 1

Answer

You know the right answer?

Laurel, inc., and hardy corp. both have 7 percent coupon bonds outstanding, with semiannual interest...

Questions