(1) Blackberry Corporation just issued a three-year 6% coupon bond with a $1,000 face value that sells for S1,050. a) Write down the formula that is used to calculate the yield to maturity. Note: You do not need to calculate anything: just write down the formula used to solve the yield to maturity i. b) Is the yield to maturity greater than or less than 6%? How do you know? (Again, calculation is not needed to answer the question.) c) Calculate the current yield ic. (Round to two decimal places.) d) If you expect the bond price to increase to $1,100 next year, what is the expected rate of returm for the next one year? Calculate the value. (Round to two decimal places.)

(1) Blackberry Corporation just issued a three-year 6% coupon bond with a $1,000 face value that sells for S1,050. a) Write down the formula that is used to calculate the yield to maturity. Note: You do not need to calculate anything: just write down the formula used to solve the yield to maturity i. b) Is the yield to maturity greater than or less than 6%? How do you know? (Again, calculation is not needed to answer the question.) c) Calculate the current yield ic. (Round to two decimal places.) d) If you expect the bond price to increase to $1,100 next year, what is the expected rate of returm for the next one year? Calculate the value. (Round to two decimal places.)

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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Pls help me with this question correctly and explanation please dont do handwritten.
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Suppose you are buying shares of a discount bond that currently cost $10 each. You have $100 of equity and can borrow at 0% interest. Assume the leverage ratio is defined as debt/equity. If your leverage ratio is 4, what is the lowest price the bond can fall to before you become insolvent? Enter your answer as numbers, not words. Round to the nearest cent if needed and do not put a dollar sign in your answer. Lowest price at leverage ratio of 4 =$ Suppose that your leverage ratio is 9 instead of 4. Given this, what is the lowest price the bond can fall to before you become insolvent? Enter your answer as numbers, not words. Round to the nearest cent if needed and do not put a dollar sign in your answer. Lowest price at leverage ratio of 9 = $ Which leverage ratio is associated with a higher risk of insolvency? Enter the number 4 if you think insolvency risk is higher when leverage is 4; enter the number 9 if you think insolvency risk is higher when leverage is 9. Higher insolvency risk…
Suppose the average return on FTSE TMX Canada long-term bonds is 7.00% and the standard deviation is 9.00% and the average return and standard deviation on T-bills are 3.30% and 2.50%, respectively. Further assume that the returns are normally distributed. Use the NORMDIST function in Excel® to answer the following questions. (Do not round intermediate calculations. Round the final answers to 2 decimal places.) a. What is the probability that in any given year, the return on long-term corporate bonds will be greater than 9% ? Less than 0% ? Greater than 9% Less than 0% % % b. What is the probability that in any given year, the return on T-bills will be greater than 9%? Less than 0%? Greater than 9% Less than 0% % % c-1. In 1981, the return on FTSE TMX Canada long-term bonds was -4.29%. How likely is it that such a low return will recur at some point in the future? Probability % c-2. T-bills had a return of 9.00% in this same year. How likely is it that such a high return on IT-bills…
Interest rates on 4-year Treasury securities are currently 5.85%, while 6-year Treasury securities yield 7.85%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round your intermediate calculations. Round your answer to two decimal places.
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4. Using Excel or your favorite software: (a) A 5-year Treasury newly issued on February 15, 2021 would have a coupon equal to the 5-year par coupon and would have been priced at par. Confirm that your par coupon results in a par price for this bond. (b) Calculate the 6-month forward rates for all the cash-flow dates of your 5-year bond. Confirm that a 5-year floating rate bond with coupons equal to the forward rates prices at par. (c) Consider the case where the Federal Reserve increases rates in a way that results in an increase of all forward rates by 200 basis points: i. Recalculate the price of the fixed-rate bond using the par coupon you calcu- lated in part 4(a) above. Note that the discount factors will have changed because of the parallel shift in the forward curve. Briefly explain the price change or lack thereof. ii. Recalculate the price of the 5-year floating-rate bond. Briefly explain the price change or lack thereof. (d) A security known as an interest-rate swap can be…
A firm's bonds have a maturity of 12 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 6 years at $1,209.43, and currently sell at a price of $1,365.89. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places. YTM: % YTC: % What return should investors expect to earn on these bonds? I. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. II. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. III. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. IV. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.
The Isabelle Corporation rents prom dresses in its stores across the southern United States. It has just issued a five-year, zero-coupon corporate bond at a price of $62 (assume a $100 face value bond). You have purchased this bond and intend to hold it until maturity. a. What is the yield to maturity of the bond? b. What is the expected return on your investment (expressed as an EAR) if there is no chance of default? c. What is the expected return (expressed as an EAR) if there is a 100% probability of default and you will recover 90% of the face value? d. What is the expected return (expressed as an EAR) if the probability of default is 50% in good times, the likelihood of default is higher in bad times than good times, and, in the case of default, you will recover 90% of the face value? e. For parts (b) through (d), what can you say about the five-year, risk-free interest rate in each case? Note: Assume annual compounding. C a. What is the yield to maturity of the bond? The yield to…
A firm's bonds have a maturity of 12 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 6 years at $1,211.14, and currently sell at a price of $1,370.78. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places. YTM: % YTC: % What return should investors expect to earn on these bonds? Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.
An insurance company is analyzing the following three bonds, each with five years to maturity, annual interest payments, and is using duration as its measure of interest rate risk. What is the duration of each of the three bonds? (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16)) a. $10,000 par value, coupon rate=9.7%, r 0.17 b. $10,000 par value, coupon rate 11.7%, r= 0.17 c. $10,000 par value, coupon rate = 13.7%, p=0.17 Duration of the bond years
Katie Pairy Fruits Incorporated has a $2,200 23-year bond outstanding with a nominal yield of 15 percent (coupon equals 15 % × $2,200 = $330 per year). Assume that the current market required interest rate on similar bonds is now only 12 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the current price of the bond. Note: Do not round Intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual. Current price of the bond b. Find the present value of 3 percent x $2,200 (or $66) for 23 years at 12 percent. The $66 is assumed to be an annual payment. Add this value to $2,200. Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual, Present value

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