9. A 20-year maturity bond with a 10% coupon rate (paid annually) currently sells at a yield to maturity of 9%. A portfolio manager with a 2-year horizon needs to forecast the total return on the bond over the coming 2 years. In 2 years, the bond will have an 18-year maturity. The analyst forecasts that 2 years from now, 18-year bonds will sell at yields to maturity of 8%, and that coupon payments can be reinvested in short- term securities over the coming 2 years at a rate of 7%. What will be the rate of return if the manager forecasts that in 2 years the yield on 18-year bonds will be 10%, and that the reinvestment rate for coupons will be 8%?

9. A 20-year maturity bond with a 10% coupon rate (paid annually) currently sells at a yield to maturity of 9%. A portfolio manager with a 2-year horizon needs to forecast the total return on the bond over the coming 2 years. In 2 years, the bond will have an 18-year maturity. The analyst forecasts that 2 years from now, 18-year bonds will sell at yields to maturity of 8%, and that coupon payments can be reinvested in short- term securities over the coming 2 years at a rate of 7%. What will be the rate of return if the manager forecasts that in 2 years the yield on 18-year bonds will be 10%, and that the reinvestment rate for coupons will be 8%?

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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A zero coupon bond with $1000 face value matures in 5 years. What is the price of the bond today if the yield-to-maturity on similar risk bonds is 12% APR compounded semi-annually?
2. See the following and check the relevant PPT Examples if needed. Show your steps. A $1,000 par value bond with 12 years to maturity pays a coupon rate of 6%, annually. The bond's yield to maturity is 6.7% per year. You expect the bond's yield to maturity in three years will be 5.9% per year and you can reinvest the bond's coupon payments over the next three years in short- term securities that p pay 4% per year. What is the expected annual return over the next three years? C 5 M
You are selected as an analysis to manage a fixed income portfolio for a client in particular a corporate bond. You are considering a 3-year floating rate note with 1 year benchmark rate of 2.88%. It is priced at 685 of 1000 par value. Your analysis tells you probability of default is approximately 40%. If the issue survives over the next three years due to the industry it is in. The probability of default for each year is 9% and a volatility of 12%. What is the price of the bond
As a bond analyst at Morgan Stanley Investment Banking, you are performing an analysis on bond yield. You have the following data for a bond issued by Intel Corp. The bond has 7% coupon and 20-year maturity. The bond sells for $1,150 and is callable in 10 years at a call price of $1,250. The bond has a face value of $1000 and makes semiannual coupon payments.a. What is the annual Yield to Call? (sample answer: 12.45%)b. What is the annual Yield to Maturity? (sample answer: 12.45%) Give typing answer with explanation and conclusion
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You have a 30-year Treasury of $1,000 face value that pays 4.4% coupons yearly and has 7.5 years left to maturity. The Yield to Maturity (YTM) of this bond is 5.2% per annum. What is its price? Remember, by convention coupons are assumed to be paid twice a year unless otherwise specified.
A bond that matures in 12 years has a $ 1000 par value. The annual coupon interest rate is 12 percent and the market's required yield to maturity on a comparable-risk bond is 16 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually?
Answer the following question step by step using the TVM formulas and the financial calculator. Show all working: Compute the current price of a bond which matures in 40 years and has a required rate of return of 10 percent, a semi-annual coupon rate of 6 percent. Assume the FV of the bond is par of $1000.
You are considering the purchase of a $1000 par value bond issued by ZLY Corporation. The bond has exactly 10 years remaining to maturity, and pays a semi-annual coupon at a rate of 9% APR compounded semi-annually. The next coupon will be paid 6 months from today. What should be the price of the bond if the stated yield-to-maturity is 11% APR compounded semi-annually?
Suppose an investor has a 5-year investment horizon. He purchased an 8-year paying an 8% annual coupon rate while the bond's initial annual yield to maturity is 6%. The bond makes coupon payments semi-annually. The investor expects that he can reinvest the coupon at an annual interest rate of 7%. At the beginning of year 6, he expects the then yield to maturity to be 7%. What is the total return for this bond?
The yield on a 1-year zero-coupon bonds is currently 7%; the YTM on 2 -year zeros is 8%. The treasury plans to issue a 2 -year maturity coupon bond, paying coupons once a year with a coupon rate of 9%. The face value of the bond is $100. (BKM 15.11) a) At what price will the bond sell? 15 p b) If the expectations theory of the yield curve is correct, what is the market expectation of the price that the bond will sell for next year? c) Recalculate your answer to b) if you believe in the liquidity preference theory and you believe the liquidity premium is 1%.

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