yers,%20Frankli...Pas erur 993ID30. Nominal and real returns* Suppose that you buy a two-year 8% bond at its face value.a. What will be your total nominal return over the two years if inflation is 3% in the firstyear and 5% in the second? What will be your rotal real return?b. Now suppose that the bond is a TIPS. What will be your total two-year real and nominalreturns?31. Bond ratings A bond's credit rating provides a guide to its price. In the fall of 2017 Aaabonds yielded 3.6% and Baa bonds yielded 4.3%. If some bad news eauses a 10% five-yearbond to be unexpectedly downrated from Aaa to Baa, what would be the effect on the bondprice? (Assume annual coupons.)CHALLENGE32. Bond prices and yields Write a spreadsheet program to construct a series of bond tablesthat show the present value of a bond given the coupon rate, maturity, and yield to maturity.Assume that coupon payments are semiannual and yields are compounded semiannually.33. Price and spot interest rates Find the arbitrage opportunity(ies). Assume for simplicity thatf tho bond is $1.000(田A.

30. Nominal and real returns* Suppose that you buy a two-year 8% bond at its face value. a. What will be your total nominal return over the two years if inflation is 3% in the first year and 5% in the second? What will be your rotal real return? b. Now suppose that the bond is a TIPS. What will be your total two-year real and nominal returns?

30. Nominal and real returns* Suppose that you buy a two-year 8% bond at its face value. a. What will be your total nominal return over the two years if inflation is 3% in the first year and 5% in the second? What will be your rotal real return? b. Now suppose that the bond is a TIPS. What will be your total two-year real and nominal returns?

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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Consider a zero coupon bond that promises to pay $100 each year for the next three years. Suppose we observe the set of zero coupon bond prices and its yields as below a) What is the price of this zero coupon bond? What is its yield to maturity? b) If the observe yield on two-year zero coupon bonds falls to 6% per year, but the other rates remain unchanged. What is your estimation of the value of the three-year annuity paying $100 per year? What is its yield to maturity?
I need assistance with the following: Suppose you have bough the above zero-coupon bond, with value and duration equal to your obligation. Now suppose the rates immediately increase to 9%. What happens to your net position? How much is the tuition obligation? How much is the zero-coupon bond? How much is the net position?
What is the answer ?
Suppose you purchase a 10-year bond with 6% 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 4.01% 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 internal rate of return of your investment? Note: Assume annual compounding. The cash flow at time 1-3 is $ (Round to the nearest cent. Enter a cash outflow as a negative number.) (Round to the nearest cent. Enter a cash outflow as a negative number.) The cash outflow at time 0 is $ The total cash flow at time 4 (after the fourth coupon) is $ negative number.) b. What is the internal rate of return of your investment? (Round to the nearest cent. Enter a cash outflow as a
Assume you can buy a bond that has a par value of $1000, matures in 10 years, yielding 6% and has a duration of 5. If you would like to use this bond to form a guaranteed investment contract “GIC” and offer a guaranteed rate of return to investors for certain years. a. what is the maximum yield you can offer? Why? Explain. b. For how many years would you make the guarantee? Explain.
Suppose that the yield curve shows that the one-year bond yield is 8 percent, the two-year yield is 7 percent, and the three-year yield is 7 percent. Assume that the risk premium on the one-year bond is zero, the risk premium on the two-year bond is 1 percent, and the risk premium on the three-year bond is 2 percent. a. What are the expected one-year interest rates next year and the following year? The expected one-year interest rate next year = The expected one-year interest rate the following year b. If the risk premiums were all zero, as in the expectations hypothesis, what would the slope of the yield curve be? The slope of the yield curve would be (Click to select) % %
Suppose today you buy a coupon bond that you plan to sell one year later. Which of the rate of return formula incorporates future changes into the bond's price?
1. Present discounted value (you might want to use a calculator or excel to compute this) a) Suppose a bond pays a coupon of 200$ for four years and a face value of 2000$ in year five. If the discount rate is 8%, what is the Present Discounted Value of this bond? b) If Nilly discounts the future at 5%, what is the maximum amount they’d be willing to pay for a 1 year, no coupon, 10000$ bond? If Shifty discounts the future at 10% what is the minimum amount they’d be willing to accept for the same bond? c) Suppose an investment project costs 1000$ upfront (year 2022), 1000$ next year (2023), then 500$ in years 2024 and 2025 each. Then it pays benefits of 1500$ for the following three years (2026, 2027, 2028). If the discount rate is 10%, is the project worth it?
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?
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). (Round the final answers to 2 decimal places.) a. Suppose that today you buy an 9.2% annual coupon bond for $1,180. The bond has 19 years to maturity. What rate of return do you expect to earn on your investment? Expected rate of return % b-1. Two years from now, the YTM on your bond has
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?
1. Suppose you purchase bond that has a coupon of $75, face value of S1,000, and current price of $1,100. What is your coupon rate? What is your current Save Answer yield? 2. Suppose you purchase a bond with a coupon of $50 for $1,010. You sell it one year later for $900. What rate of return did you carn?

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