6. You want to buy a new car for $480,000, and the car dealership has quoted you an 4.6%APR loan compounded monthly for 48 months to buy the car. What is the EAR on thisloan?A. 4.66%B. 4.68%C. 4.70%D. 4.72%7. Grand Land Limited offers a 9.5% coupon bond with annual payments. The yield tomaturity is 11.2% and the maturity date is 11 years from today. What is the market price ofthis bond if the face value is $1,000?A. $895.43B. $1,009.67C. $1,112.20D. $1,234.188. How much are you willing to pay for one share of ABC stock if the company just paid a$0.70 annual dividend, the dividends increase by 1.6% annually, and you require a 10%rate of return?A. $8.29B. $8.33C. $8.47D. $8.539. A project has an initial cost of $6,500,000. The cash inflows are $900,000, $2,200,000,$3,600,000, and $4,100,000 over the next four years, respectively. What is the paybackperiod?А. 1.73 yearsВ. 2.51 уearsС. 2.94 yearsD. 3.51 years10. Suppose a stock had an initial price of $80 per share, paid a dividend of $1.35 per shareduring the year, and had an ending share price of $87. What was the capital gains yield?A. 7.55%В. 7.69%C. 8.05%D. 8.75%**

Answer 6: Effective annual interest rate =(1+Raten)^n-1 where Rate = nominal interest rate n=number…

6. You want to buy a new car for $480,000, and the car dealership has quoted you an 4.69 APR loan compounded monthly for 48 months to buy the car. What is the EAR on thi loan? A. 4.66% B. 4.68% C. 4.70% D. 4.72% 7. Grand Land Limited offers a 9.5% coupon bond with annual payments. The yield t maturity is 11.2% and the maturity date is 11 years from today. What is the market price o this bond if the face value is $1,000?

6. You want to buy a new car for $480,000, and the car dealership has quoted you an 4.69 APR loan compounded monthly for 48 months to buy the car. What is the EAR on thi loan? A. 4.66% B. 4.68% C. 4.70% D. 4.72% 7. Grand Land Limited offers a 9.5% coupon bond with annual payments. The yield t maturity is 11.2% and the maturity date is 11 years from today. What is the market price o this bond if the face value is $1,000?

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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Suppose that you own a 1-year bond with a 10% coupon rate, a yield of 2%, and a face value of $1,000. Suppose further that you took out a 1-year loan of $900 at 2% (you lucky devil, you!) to help start your new food truck business. Calculate your net worth (assets minus liabilities) if all interest rates rise from 2% to 3%. ___________
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?
Consider a bond with a face value of $1,000. The coupon is paid semiannually and the market interest rate (effective annual interest rate) is 8 percent. How much would you pay for the bond if a. the coupon rate is 6 percent and the remaining time to maturity is 10 years?
Suppose that you want to construct a 2-year maturity forward loan commencing in 3 years. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 5 Price $ 996.04 895.89 833.92 772.80 675.18 Required: a. Suppose that you buy today one 3-year maturity zero-coupon bond with face value $1,000. How many 5-year maturity zeros would you have to sell to make your initial cash flow equal to zero (specifically, what must be the total face value of those 5-year zeros)? b. What are the cash flows on this strategy in each year? c. What is the effective 2-year interest rate on the effective 3-year-ahead forward loan? d. & e. Confirm that the effective 2-year forward interest rate equals (1 + f4) ×(1 + f5)-1. You therefore can interpret the 2-year loan rate as a 2-year forward rate for the last two years. Alternatively, show that the effective 2-year forward rate equals (1 + y5) 15 + (1+y3) ³. - 1
An insurance company must make payments to a customer of $10 million in one year and $5 million in five years. The yield curve is flat at 10%. Required: a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. What must be the face value and market value of that zero-coupon bond? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. a. Maturity of zero coupon bond b. Face value b. Market value years million million
Consider a bond (with par value = $1,000) paying a coupon rate of 10% per year semiannually when the market interest rate is only 4% per half-year. The bond has three years until maturity. Required: a. Find the bond's price today and six months from now after the next coupon is paid. b. What is the total (6-month) rate of return on the bond? Complete this question by entering your answers in the tabs below. Required A Required B Find the bond's price today and six months from now after the next coupon is paid. Note: Round your answers to 2 decimal places. Current price Price after six months $ $ 1,052.42 1,044.52
Suppose you purchase a ten-year bond with 12% 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 10.64% 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. a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flow at time 1-3 is $ (Round to the nearest cent. Enter a cash outflow as a negative number.) The cash outflow at time 0 is $ number.) (Round to the nearest cent. Enter a cash outflow as a negative The total cash flow at time 4 (after the fourth coupon) is $. (Round to the nearest cent. Enter a cash outflow as a negative number.) b. What is the internal rate of return of your investment? The internal rate of return of your investment is %. (Round to two decimal…
You want to receive $5,000 per month in retirement. If you can earn 0.8% return per month and you expect to need the income for 28 years, how much do you need to have in your account at retirement? $582,032 $589,511 $596,123 $575,298 A firm has issued a bond. The bond has a 6% coupon, paid semiannually, a current maturity of 15 years, and sell for $1,273.8. The firm’s marginal tax rate is 21%. What’s the firm’s after-tax component cost of debt? 3.62% 2.86% 6.00% 12%
A mortgage pass-through security (PT) has a par value of $100,000, a 4% coupon paid monthly, and is based on 30 year mortgages. The current market rate for similar bonds is 3.5%, and prepayments currently equal $100 per month. Assume rates immediately rise to 4.5%, and prepayments drop to $40 as a result. The PT will now be paid off in month 310. What is the price of the PT today? Group of answer choices: $98,323.2214 $184,274.6844 $94,737.4877 $102,365.1248
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?
An asset promises to pay the following: ▪ $60 each year for the next ten years: and ▪ $1,000 in ten years Assume all the cash flows are discounted by 6%. Use the annuity formula to get the price of the first part. Use the standard discounting formula to get the price of the second part. Add them together. This is a bond! It is described as paying a coupon rate of 60/1,000 = 6% (a coupon of 60), with a face value of 1,000 and a maturity of ten years. And its “yield-to-maturity” is 6%.
7. BCE bond has 10 years until maturity and a coupon rate of 8% payable annually, and sells for $1,100. a. If the BCE bond in problem 6 has a yield to maturity of 8% 1 year from now, what will its price be? (Round your answer to the nearest whole dollar.) b. What will be your rate of return if you buy it today and sell it in one year? (Round your answer to 2 decimal places. Use minus sign to enter negative rate of return, if any.) c. If the inflation rate during the year is 3%, what is the real rate of return on the bond? (Round your answer to 2 decimal places. Use minus sign to enter negative rate of return, if any.)

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