Answered

Find the best solutions to your questions at Westonci.ca, the premier Q&A platform with a community of knowledgeable experts. Explore a wealth of knowledge from professionals across various disciplines on our comprehensive Q&A platform. Get precise and detailed answers to your questions from a knowledgeable community of experts on our Q&A platform.

Suppose Baa-rated bonds currently yield 6.1%, while Aa-rated bonds yield 4.1%. Now suppose that due to an increase in the expected inflation rate, the yields on both bonds increase by 1.0%. What would happen to the confidence index? (Round your answers to 4 decimal places.)

Sagot :

Answer:

Confidence index increases from 0.6721 to 0.7183

Explanation:

The computation of the confidence index is shown below:

Initial Confidence Index is

= Aa-rated bonds yield ÷ Baa-rated bonds yield

= 4.1% ÷ 6.1%

= 0.6721

Since the yields on both bonds increase by 1.0%

So, the confidence index after increase in yield is

= (4.1% + 1%) ÷ (6.1% + 1%)

= 0.7183

So,  Confidence index increases from 0.6721 to 0.7183

We hope our answers were useful. Return anytime for more information and answers to any other questions you have. We hope our answers were useful. Return anytime for more information and answers to any other questions you have. Westonci.ca is committed to providing accurate answers. Come back soon for more trustworthy information.