30) Suppose that you currently hold a bond with a face value of $1000, six-year maturity that pays 8 percent coupons with an 8 percent yield to maturity, with annual coupon payment. Also, suppose that for each of the first five years that you receive coupon payments, you reinvest each coupon payment into an asset that pays 9% interest. What is your reinvestment income at the end of year 5?

30) Suppose that you currently hold a bond with a face value of $1000, six-year maturity that pays 8 percent coupons with an 8 percent yield to maturity, with annual coupon payment. Also, suppose that for each of the first five years that you receive coupon payments, you reinvest each coupon payment into an asset that pays 9% interest. What is your reinvestment income at the end of year 5?

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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You purchased a bond for 725. The bond has a coupon rate of 8 percent, which is paid semiannually. It matures in 6 years and has a par value of 1,000. What is your expected rate of return?
An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 12% annual coupon. Bond L matures in 15 years, while Bond S matures in 1 year. a. What will the value of the Bond L be if the going interest rate is 6%, 8%, and 13% ? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made on Bond L. Round your answers to the nearest cent. 6% Bond L $ Bond S $ $ $ -Select- 8% $ $ 13% b. Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change? I. Long-term bonds have lower reinvestment rate risk than do short-term bonds. II. The change in price due to a change in the required rate of return increases as a bond's maturity decreases. III. Long-term bonds have greater interest rate risk than do short-term bonds. IV. The change in price due to a change in the required rate of return decreases as a bond's maturity increases. V. Long-term bonds have…
4. You bought a 10-year, 5% coupon bond for $1,000 and sold it 1 year later for $1,100. What is the rate of return on your investment if the bond pays interest annually? If your marginal tax rate is 30%, and 50% of capital gains are taxable, what is the after-tax rate of return on your bond investment?
If you buy municipal bond (tax free) that cost $1,000 and will pay a 4.7% coupon every year for the next 10 years (so the maturity date is in 10 years). At maturity the bond returns the original $1,000. If there is a 2.5% annual inflation, a) what real rate of return will you receive? b) How much real $ profit did you make from the bond?
The ARA Corporation bonds have a coupon of 14%, pay interest semi-annually,and they will mature in 7 years. Your required rate of return for such an investmentis 10% annually.i) How much should you pay for a $1,000 ARA Corporation bond?ii) If you are given RM90,000, how many units of bond can you purchase?iii) What is the yearly interest income for this bond if I purchase it with RM90,000?iv) You plan to reinvest the coupon interest at 12% rate of return per annum. Calculate the value of the reinvestment, what is the figure will you get at the end of 7th years with your principle 2) Find the duration of the bond with the given information.Face value = RM1000Maturity = 6 yearsCoupon = 5%Bond value = RM1020 3) Recent dividend distributed RM1. Suppose a firm is expected to increase dividends by 20% in one year and by 15% in two years. After that, dividends will increase at a rate of 5% per year indefinitely. If the required return is 20%, calculate the stock. 4) Capital Bhd. just paid a…
An investor is considering the purchase of a bond. The bond has a face value of $1000 and an interest rate of 6%; it pays interest once a year and matures in 8 years. This investor’s real MARR is 25%. If the investor expects an inflation rate of 4% per year for the next 8 years, how much should he be willing to pay for the bond?
Suppose that the constant and perpetual cash flow is $1,000 and the discount rate is 10%. What is the value of this perpetuity? 5-year bond with a coupon rate of 4% has a face value of $1000. What is the annual interest payment?
D4) Suppose that there is 30-year coupon bond with par value of $100 and Macaulay duration of 20.56. The coupon rate is unknown. Currently, the bond is traded at $90 and the yield is flat at 20% pa. Yield to maturity is an annualized simple interest rate compounded annually. If the bond yield increases by 50 basis points, what is the approximation of the percentage capital gain or loss? Please choose the correct range for the percentage capital gain/loss, i.e., if it is -3.5%, please select “A value between -3% and -4%” A value between -9% and -10% A value between -8% and -9% None of the other answers are correct. A value between -7% and -8% A value between -10% and -11%
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You buy a zero couponbond at the beginning of the year that has a face value of $1,000, a YTM of 7 percent,and 25 years to maturity.If you hold the bond for the entire year, how much in interest income will you have to declare on your tax return? without excel please manually
An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 6% annual coupon. Bond L matures in 12 years, while Bond S matures in 1 year. Assume that only one more interest payment is to be made on Bond S at its maturity and that 12 more payments are to be made on Bond L. What will the value of the Bond S be if the going interest rate is 12%? Round your answer to the nearest cent.
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