1. Bonds A S1000 bond has a coupon rate of 8 percent and coupons are payable annually. Suppose are 10 years left on the bond, and you purchased it at a yield of maturity of 9%. there a. How much are you paying for the bond? b. Are you buying at a premium or discount? Explain. c. What is the current yield of the bond? d. Suppose you expect to sell you bond next year to yield a rate of return of 5%, what is the expected selling price of the bond? e. What is the yield to maturity when you sell it?

1. Bonds A S1000 bond has a coupon rate of 8 percent and coupons are payable annually. Suppose are 10 years left on the bond, and you purchased it at a yield of maturity of 9%. there a. How much are you paying for the bond? b. Are you buying at a premium or discount? Explain. c. What is the current yield of the bond? d. Suppose you expect to sell you bond next year to yield a rate of return of 5%, what is the expected selling price of the bond? e. What is the yield to maturity when you sell it?

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) Suppose that you have a bond with a face value of $1,000 and a coupon rate of 8% for one year and that you buy another one after one year. What will be your gain if the interest rate increases up to 10%? (2) Suppose that the expectations theory is true and that you can buy a three-year bond with an interest rate of 6% or three consecutive one-year bonds with interest rates of 4%, 5%, and 6%. Which option would you choose to undertake? Why? (3) One-year T-bill rates over the next five years are expected to be 4%, 5%, 6%, 6.5%, and 8%. If five-year T-bonds are yielding 13%, what is the liquidity premium on this bond?
A zero-coupon bond has a $100 face value, matures in 10 years and currently sells for $781.20 . a What is the market’s required return on this bond? b Suppose you hold this bond for one year and sell it. At the time you sell the bond, market rates have increased to 3.5%. What return did you earn on this bond? c Suppose that, rather than buying the 10-year zero-coupon bond described at the start of this problem, you instead purchased a 10-year 2.5% coupon bond. (Assume annual payments.) Because the bond’s coupon rate equalled the market’s required return at the time of purchase, you paid face value ($100) to acquire the bond. Again assume that you held the bond for one year, received one coupon payment, and then sold the bond, but that at the time of sale, the market’s required return was 3.5%. What was your return for the year? Compare your answerhere to your answer in part (b).
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Consider a bond with a face value of $2,000 that pays a coupon of $150 for 10 years. Suppose the bond is purchased at $500, and can be resold next year for $400. What is the rate of return of the bond? 10% 0% -10% 20%
N
The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy an annual coupon bond with a coupon rate of 8.4 percent for $895. The bond has 10 years to maturity and a par value of $1,000. What rate of return do you expect to earn on your investment? Note: Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b-1. Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for? Note: Do not round Intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b-2. What is the HPY on your investment? Note: Do not round Intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Rate of return b-1. Price b-2. Holding period…
1.If you buy a 5-week T-bill with a face value of Tk.1,500 for $990, what is the bond equivalent yield, assuming it is not a leap year?
A bond with a face value of $1000 and a coupon rate of 10% (paid semi-annually) matures in 10 years from now. The required return (YTM) is 5%. i) Is the bond sold at premium or at discount? Explain. ii) What is the current market price of the bond? iii) Suppose interest rates and the required return for the bond in part ii) change, so that the market price of this bond is now $980. What is the new yield to maturity of this bond? Did the YTM go up or down? Show proper steps of the proof
Beno 1. Suppose you have a bond with 5 years to maturity. The face value of the bond is $1,000 and its coupon rate is 6 percent (annual payments). When the required yield (YTM) on this: bond is 5 percent (compounded annually), what is the current price of the bond? 111 E
4) A coupon bond pays this amount every 6 months; $ 30.00 bgs for the number of payments/year; 2 The bond also pays at maturity the par (face) value; $ 1,000.00 Number of years until maturity 15 The required return of holders of this bond is; 8.00% bgs a) What is the PV of the CFs, or what would be the fair price to purchase this bond? b) If the required return of holders of this bond is; 6.00% bgs What is the PV of the CFs, or what would be the fair price to purchase this bond? c) If the required return of holders of this bond is; 4.00% What is the PV of the CFs, or what would be the fair price to purchase this bond? to purchase this bond? bgs d) If the previous bond sells for; $ (976.00) What must be the yield to maturity for this bond (aka IRR) ? (to…
3.20. Suppose you want to buy a PP&L bond with coupon 18.75% that matures in 5 years, and pays interest semiannually. If the face value of this bond is $1,000, and your required rate of return is 12%, how much should you pay for this bond?
3. Suppose that you observe the following two bonds being traded, both of which pay coupons annually and have a $100 face value: Bond Coupon Maturity Rate A B 6% 2% 30 years 30 years Price $147.13 $64.47 If the Law of One Price holds, what is the price of a 30-year Annuity that pays $8 per year starting at t = 1?

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