1. An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 7.8%. Bond C pays a 10.75% annual coupon, while Bond Z is a zero coupon bond. Assuming that the yield to maturity of each bond remains at 7.8% over the next 4 years, calculate the price of the bonds at each of the years to maturity in the table.

1. An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 7.8%. Bond C pays a 10.75% annual coupon, while Bond Z is a zero coupon bond. Assuming that the yield to maturity of each bond remains at 7.8% over the next 4 years, calculate the price of the bonds at each of the years to maturity in the table.

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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A $1,000 bond has a coupon of 4 percent and matures after tên years. ASsume that the bond pays interest annually. a. What would be the bond's price if comparable debt yields 6 percent? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $ b. What would be the price if comparable debt yields 6 percent and the bond matures after five years? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. c. Why are the prices different in a and b? The price of the bond in a is -Select- v than the price of the bond in b as the principal payment of the bond in a is -Select- v than the principal payment of the bond in b (in time). d. What are the current yields and the yields to maturity in a and b? Round your answers to two decimal places. The bond matures after ten years: CY: % YTM: % The bond matures after five years: CY: YTM:
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A bond has just been issued. The bond has an annual coupon rate of 7% and coupons are paid annually. The bond has a face value of $1,000 and will mature in 7 years. The bond’s yield to maturity is 9%. Calculate the actual change in the bond’s price as the yield to maturity changes from 9% to 11%. Use the bond’s duration to calculate the approximate bond price change as the yield to maturity changes from 9% to 11%.
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A bond has just been issued. The bond has an annual coupon rate of 4% and coupons are paid annually. The bond has a face value of $1,000 and will mature in 8 years. The bond’s yield to maturity is 8%. Create a table to demonstrate the impact of the coupon rate and the time to maturity on the bond’s duration using: Coupon Rates of 0%, 4%, 8%, and 12%. Maturities of 4 years, 8 years, and 12 years.
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