. Bond Valuation. Consider a bond that matures in 3 years. The face valueof this bond is $1000. The bond pays semi-annual coupons at a rate of 8%.(a) Calculate the price of this bond, assuming the yield to maturity is 8.5%(b) Suppose you hold this bond for two years and then sell it just afterreceiving a coupon payment. At the time of the sale, the yield to maturity hasfallen to 7.8%. Calculate the price of the bond at the time of the sale.(c) What is your total dollar value and percent return over the holding period?

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Answered: . Bond Valuation. Consider a bond that…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Calculate the current price of the following bonds: b) Bond J has a face value of $22,000 and a maturity of 25 years, it makes no coupon payments over the life of the bond. The required return on this bond is 12% compounded semi-annually. please answer using formulas
Consider a 5-year, semi-annual coupon bond with a price of $110 and a couponrate of 6%. The face value is $100.1. What is the yield of the bond?2. How much does the price change if the yield is increased by 0.01%.
Consider a bond at par initially issued for a 30-year term. Its nominal rate (annual coupon) is 5%. You buy this bond when it still has 20 years of residual maturity. At that time, the market rate is 8%. A few days after your purchase, the market rate drops to 6% (this assumption is then always verified). You will sell your bond 12 years later (8 years before maturity). What will have been the overall annual profitability of your investment?
Consider the following scenario: A bond has a price of $95 (Par Value 100). It matures in 7 years and pays coupons semi-annually. Find the coupon rate of the bond (in annual terms) that would yield a duration of 5.5.
A bond has 10 years until maturity, a coupon rate of 8.3%, and sells for $1,170. Interest is paid annually. ( Assume a face value of $1,000.) If the bond has a yield to maturity of 9.7% 1 year from now, what will its price be at that time? Note: Do not round intermediate calculations. Round your answer to nearest whole number. What will be the rate of return on the bond? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Negative amount should be indicated by a minus sign. If the inflation rate during the year is 3%, what is the real rate of return on the bond? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Negative amount should be indicated by a minus sign.
What is the price of a bond with a coupon rate of 4% making semi-annual payments with a face value of $1,000 that matures in 10 years when a. the YTM on the bond is 8.6%? B. the Y IM Is 6.6%? C. the YTM is 5.0%? d. What is the relationship between YTM and price?
1. You buy a 6 year bond with an annual 5% coupon at par value, $1000. If the yield to maturity at the end of the first year changes to 3% what is the end of the year value of the bond(after the coupon payment, remember: bond value does not include this coupon)? 2. Calculate the value of a 6 year 2% coupon bond with semiannual payments, 1000 par. Expected return is the risk free rate of 3%. 3. Price a 5 year 4% semiannual coupon bond if the yield to maturity is 6% (write the price as if par is 100, use 5 decimal places)
2. See the following and check the relevant PPT Examples if needed. Show your steps. A $1,000 par value bond with 12 years to maturity pays a coupon rate of 6%, annually. The bond's yield to maturity is 6.7% per year. You expect the bond's yield to maturity in three years will be 5.9% per year and you can reinvest the bond's coupon payments over the next three years in short- term securities that p pay 4% per year. What is the expected annual return over the next three years? C 5 M
Solve the following questions without using Excel. A 5 year bond with a coupon of 7%, that pays interest annually, has its next coupon due in 12 months. It yields 5% per annum. a) compute the duration of the bond. Use this to compute approximately how the price of the bond will change if yields rise to 6%. (b) Compute the convexity of the bond. Use this to obtain a more precise estimate of the change in the price which will occur if the yield rises to 6%.
Suppose that you bought a 14% Drexler bond with time to maturity of 9 years for $1,379.75 (semiannual coupons, interest rate=8%). After another ½ year, you sold the bond. Assuming that the required rate of return remained at 8%, what would the selling price be? What is the rate of return from this investment? If the interest rate dropped by 25 basis points, what would the selling price be? What would the rate of return from this investment be?
Consider an 8-month forward contract to buy a coupon-bearing bond that will mature in 1 year from today (t = 0). The current market price of the bond is $800. The bond 5. pays a coupon of $30 every 6 months. Assume that the 6-month and 8-month risk-free interest rates (continuously compounded) are 4% and 5% per annum, respectively. Compute today's (at time t = 0) arbitrage-free forward price.
Suppose you purchase a 10-year bond with 6.3% annual coupons. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 4.6% when you purchased and sold the bond, A)What cash flows will you pay and receive from your investment in the bond per $100 face value? B)What is the annual rate of return of your investment?

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