**Corporate Bond Investment Analysis**This problem examines the decision to purchase a corporate bond under specific financial conditions. The scenario is as follows:**Bond Details:**- **Face Value:** $10,000- **Maturity Period:** 10 years- **Offered Price:** $11,000 (bond is offered at a premium)- **Bond Rate:** 10% per year, compounded quarterly**Investor's Requirement:**- **Desired Rate of Return:** 8% per year, compounded quarterly**Decision Analysis:**John wants to determine if buying the bond aligns with his financial goal of earning an 8% annual return, compounding quarterly. The solution involves calculating whether the bond's yield matches or exceeds this required rate of return if he retains the bond until maturity and redeems it at face value.To solve this, you would typically calculate the bond's yield to maturity (YTM) and compare it with the desired rate of return. The YTM involves finding the rate "r" that satisfies the equation for the present value (PV) of future cash flows (bond interest payments and redemption at face value) equating to the purchase price ($11,000).**Key Steps to Solve:**1. **Cash Flow Analysis:** - Regular interest payments calculated based on the bond's compounding schedule. - Redemption of the bond at face value at maturity.2. **Calculate Present Value:** - Use the formula for present value of annuity and single sum to derive the YTM. - Compare with the desired return of 8% quarterly compounded.**Conclusion:**Show the mathematical work to reach a conclusion, stating whether the actual YTM meets or exceeds John’s expectation, guiding the purchase decision.

The question is based on the concept of valuation of bond with coupon payment. Formula as, V=…

6) per year compounded quarterly. If John wishes to earn 8% per year compounded quarterly on the bond investment, should he purchase the bond assuming he keeps the bond till it matures and then redeems it at face value? Explain. Show all work. A $10,000, 10-year corporate bond is offered at a premium for $11,000. The bond rate is 10%

6) per year compounded quarterly. If John wishes to earn 8% per year compounded quarterly on the bond investment, should he purchase the bond assuming he keeps the bond till it matures and then redeems it at face value? Explain. Show all work. A $10,000, 10-year corporate bond is offered at a premium for $11,000. The bond rate is 10%

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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John bought a 10-year bond for $925. The bond pays a coupon of 5 percent per year and payments are made semiannually. What is the Effective Annual Yield (EAY) on this bond? 10.67% 9.66% O 6.10% 6.30% 3.10%
You purchase a 3 - year corporate bond, which has a coupon rate of 8%, paid annually. Its par value is $ 1,000. If the YTM is 6%, what is the duration of the bond? A. 2.83 years B. 2.92 years C. 2.67 years D. 2.79 years
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3. A man is considering to buy a 20-year corporate bond. The bond has a face value of $1,000 and pays 6% interest per year in two semi-annual payments and in addition he will receive $1,000 at the end of 20 years, along with the last interest payment. If the investor believes he should receive 8% annual interest, compounded semi-annually, what will be the amount he is willing to pay for the bond?
Assume that three years ago, you purchased a corporate bond that pays 6.50 percent. The face value of the bond was $1,000. Also assume that three years after your bond investment, comparable bonds are paying 7.00 percent. (a) What is the annual dollar amount of interest that you receive from your bond investment? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Annual interest (b) Assuming that comparable bonds are paying 7.00 percent, what is the approximate dollar price for which you could sell your bond? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Approximate bond price
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Bob uses 19481 to purchase a 10-year par-value bond (i.e. redeems at face-value). Coupons are paid out annually (end of the year) and each coupon is equal to 2% of the face-value of the bond. If each coupon payment is invested into an account that earns an effective annual interest rate of 2.4%, then what is the face-value of the bond if Bob realizes an overall yield of 3.36% per year effective over the 10 year period? Give your answer rounded to the nearest whole number (i.e. X).
A bond matures in 20 years, at which time it pays the owner $1,000. It also pays $70 at the end of each of the next 20 years. If similar bonds are currently yielding 7%, what is the market value of the bond? Select one:cannot be determined from the information givenexactly $1,000under $1,000over $1,000
A few years ago, Zabar Technology issued an annual bond that has a face value equal to $1,000 and pays investors $40 interest semiannually. The bond has four years remaining until maturity. If an investor requires a 5% rate of return to invest in this bond, what is the maximum price he or she should be willing to pay to purchase the bond today? O $1,106.38 O $964.54 O $1,107.55 $935.37
Ten bonds are purchased for $9,598.13 and are kept for 5 years. The bond coupon rate is 7% per year, payable semiannually. Immediately following the owner's receipt of the last coupon payment, the owner sells each bond for $50 less than its par value (price discount). The owner will invest in the bonds if the effective annual yield is at least 9%.What is the face value of each bond?______

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