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Mouch's auto loan requires monthly payments and has an effective annual rate of 6
Mouch's auto loan requires monthly payments and has an effective annual rate of 6.43%. The APR on this auto loan is closest to: O a. 6.50% Ob.6.83% OC. 6.00% O d.6.25% O e. 6.62% QUESTION 13 ABC is a 4% coupon bond. Bond XYZ is a 10% coupon bond. Both bonds have 8 years to maturity and make half-yearly coupon payments. They are currently priced at par value. If interest rates fall by 1.5%, what are the new bond prices for Bond ABC and XYZ respectively? Assume par value per bond is $1000. a. Price for Bond ABC=$1,108.15; Price for Bond XYZ=$1,093.04 b. Price for Bond ABC=$1,108.15; Price for Bond XYZ=$1,085.80 OC. None of the answers are correct Od. Price for Bond ABC=$1,120.22; Price for Bond XYZ $1,085.80 Oe. Price for Bond ABC=$1,120.22; Price for Bond XYZ=$1,093.04
Expert Solution
Q#12:
APR = 6.25% (rounded)
Answer is choice (d)
Calculation as below:
Q#13:
Since both the bonds are currently selling at par, their YTM is equal to coupon rate. Upon decrease in interest rate by 1.5%, new YTM is as follows:
Bond ABC: 4%-1.5%= 2.5%
Bond XYZ: 10%-1.5% = 8.5%
Consequent to the fall in interest rate,
Price of Bond ABC= $1,108.15 and price of Bond XYZ= $1,085.80
Answer is choice (b)
Calculation as follows:
please see the attached file for the complet solution.
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