40. The interest rate on conventional 10-year Treasury bonds is 7% per year and the interest rate on 10-year TIPS (Treasury inflation-protected securities) is 3.5% per year. You have $10,000 to invest in one of them. a. If you expect the average inflation rate to be 4% per year, which bond offers the higher expected rate of return? b. Which would you prefer to invest in?

40. The interest rate on conventional 10-year Treasury bonds is 7% per year and the interest rate on 10-year TIPS (Treasury inflation-protected securities) is 3.5% per year. You have $10,000 to invest in one of them. a. If you expect the average inflation rate to be 4% per year, which bond offers the higher expected rate of return? b. Which would you prefer to invest in?

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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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?
I would love some expertise help on this question showing the formulas used. Thank you very much in advance
Please Explain Step by Step Thank you! A bond pays $12,000 per year for the next 10 years. The bond costs $108,000 now. Inflation is expected to be 6 percent over the next 10 years. Answer parts (a) and (b). a. What is the current dollar internal rate of return? Use linear interpolation with x1=1.95% and x2=2.00% to find your answer. The current dollar internal rate of return is enter your response here percent. (Type an integer or decimal rounded to two decimal places as needed.) b. What is the real internal rate of return? The real internal rate of return is enter your response here percent. (Type an integer or decimal rounded to two decimal places as needed.)
Finance Suppose that the price of 3-year zero-coupon bonds is 1000 pounds. What is the forward rate for the third year? How would you construct a synthetic 1-year forward loan that commences at t= 2 and matures at t= 3
Please answer a,b
The two-year interest rate is 10.4%, and the expected annual inflation rate is 5.2%. a. What is the expected real interest rate? b-1. If the expected rate of inflation suddenly rises to 7.2%, what does Fisher's theory say about how the real interest rate will change? b-2. If the expected rate of inflation suddenly rises to 7.2%, what will be the new nominal rate? Complete this question by entering your answers in the tabs below. Req A Req B1 Req B2 What is the expected real interest rate? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Expected real interest rate %
20. Your assistant gathered the following financial data for Japan: The real risk-free rate is 3%. Inflation is expected to be 2% this year and 4% during the next 2 years. What is the required return on 2-year Treasury bond securities? Since the maturity is only 2 years we will assume that no premium should be required for the maturity risk. a) 6% b) 8% c) 6.33% O d) 8.33% e) None of the above
suppose you own a 40-year bond that has a bond rate of 2% per year. 1. How much money will you lose if the value of the bond today is $10,000 (face value of the bond) and the yield increases to 3% ? 2. If this bond is purchased now for $5,000, what yearly yield would the buyer receive?
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1. Present value is the value today of a future cash flow or series of cash flows. Discounting is the process of finding the present value of a cash flow or a series of cash flows; discounting is the reverse of compounding. Suppose a U.S. government bond promises to pay $2,249.73 three years from now. If the going interest rate on three-year government bonds is 4%, how much is the bond worth today? How would your answer change if the bond matured in 5 years rather than 3? What if the interest rate on the 5-year bond was 6% rather than 4%? How much would $1,000,000 due in 100 years be worth today if the discount rate was 5%? if the discount rate was 20%? 2. A dollar in hand today is worth more than a dollar to be received next year. Suppose you currently have $2,000 and plan to purchase a 3-year certificate of deposit (CD) that pays 4% interest compounded annually. How much will you have when the CD matures? How would your answer change if the interest rate were 5% or 6% or 20%?
A short question 4) You are managing a portfolio of $1 million. Your target duration is 10 years, and you can choose from two bonds: a zero-coupon bond with maturity of 5 years, and a perpetuity*, each currently yielding 5%. a. How much of each bond will you hold in your portfolio? b. How will these ratios change next year if target duration is now 9 years? *: Perpetuity: a specal case of annuity, where n-> Inf, thus the maturity of the instrument is perpetual.

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