Answered

Welcome to Westonci.ca, where you can find answers to all your questions from a community of experienced professionals. Get immediate and reliable solutions to your questions from a knowledgeable community of professionals on our platform. Discover detailed answers to your questions from a wide network of experts on our comprehensive 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 appreciate your time on our site. Don't hesitate to return whenever you have more questions or need further clarification. We appreciate your time. Please come back anytime for the latest information and answers to your questions. Westonci.ca is here to provide the answers you seek. Return often for more expert solutions.