7. Valuing semiannual coupon bondsBonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas theamount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly.Assume that a $1,000,000 par value, semiannual coupon US Treasury note with four years to maturity has a coupon rate of 3%. The yield to maturity(YTM) of the bond is 11.00%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note:$895,940.83$746,617.36$634,624.76$470,368.94Based on your calculations and understanding of semiannual coupon bonds, complete the following statement:When valuing a semiannual coupon bond, the time period variable(N) used to calculate the price of a bond reflects the number ofperiods remaining in the bond's life.

Treasury Notes are issued by federal government that represents government debt raised through…

Answered: 7. Valuing semiannual coupon bonds…

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

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7. Valuing semiannual coupon bonds Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon US Treasury note with three years to maturity has a coupon rate of 3%. The yield to maturity (VTM) of the bond is 7.70%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: O $876,205.93 O $1,051,447.12 O $744,775.04 $552,009.74 Based on your calculations and understanding of semiannual coupon bonds, complete the following statement: The T-note described in this problem is selling at a
Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon US Treasury note with three years to maturity has a coupon rate of 6%. The yield to maturity (YTM) of the bond is 9.90%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: $567,545.29 $765,735.71 $900,865.54 $1,081,038.65 Based on your calculations and understanding of semiannual coupon bonds, complete the following statement: Assuming that interest rates remain constant, the T-note’s price is expected to ( Increase, Decrease).
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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
Bond J has a coupon rate of 4.2 percent. Bond K has a coupon rate of 14.2 percent. Both bonds have ten years to maturity, a par value of $1,000, and a YTM of 9.4 percent, and both make semiannual payments. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. If interest rates suddenly fall by 2 percent instead, what is the percentage change in the price of these bonds? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. Percentage change in price b. Percentage change in price Bond J % % Bond K do do % %
The following table shows the prices of a sample of Treasury bonds, all of which have coupon rates of zero. Each bond makes a single payment at maturity. Years to Maturity Price (% of face value) 1 98.052% 2 94.551 3 90.744 4 86.680 What is the 1-year interest rate? What is the 3-year interest rate? What is the 4-year interest rate? Is the yield curve upward-sloping, downward-sloping, or flat? Is this the usual shape of the yield curve?
Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon US Treasury note with two years to maturity has a coupon rate of 4%. The yield to maturity (YTM) of the bond is 8.80%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: $913,697.55 $1,096,437.06 $776,642.92 $575,629.46 Based on your calculations and understanding of se The T-note described in this problem is selling at a discount premium pupon bonds, complete the following statement:
A government bond with 2 years until maturity has a face value of £120,000 and anannual nominal coupon rate of 1%. Assume that the relevant nominal market interestrate (annualized) is equal to 5%. The coupon payments are made every 6 months. Calculate the present value of the bond. Assume the individual coupons are stripped from the bond and soldseparately as zero coupon bonds. Calculate the market value of these zero couponbonds. Assume there are no further changes to the market rate. How would youexpect the price of the bond to evolve? Assume there exist a Callable bond with similar characteristics to thebond described above. Would you expect this Callable bond to have a higher orlower price? Explain why.
A bond, paying semi-annual coupons of 1% per annum, matures in 7 months time. The interest rate (with semi-annual compounding) for 1 month is 6.00%, while for 7 months, it is 4.90%. What is the dirty price of the bond?
Valuing semiannual coupon bonds Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon U.S. Treasury note with three years to maturity has a coupon rate of 3%. The yield to maturity (YTM) of the bond is 11.00%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: $504,112.64 $800,178.79 $960,214.55 $680,151.97 Based on your calculations and understanding of semiannual coupon bonds, complete the following statements: • Assuming that
Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon US Treasury note with five years to maturity has a coupon rate of 6%. The yield to maturity (YTM) of the bond is 9.90%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: $534,907.72 $849,059.88 $1,018,871.86 $721,700.90 Based on your calculations and understanding of semiannual coupon bonds, complete the following statement: The T-note described in this problem is selling at a .

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