A 20-year bond with 8% annual coupons is purchased at a price of P. The face amount of the bond is F. The price assumes anannual effective yield rate of 4%.The change in book value of the bond during the 8th year is equal to 43.24.Calculate P.2,3152,4702,6252,780.E3,085Grade & Review >

1. Coupon Rate:The coupon rate is the annual interest rate paid by the bond issuer to the…

Answered: A 20-year bond with 8% annual coupons…

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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(i) Complete the information requested for each of the following $1000 face value, zero coupon bonds assuming semi-annual compounding. Bond Maturity (year) YTM (%) Price at t=0 A 20 12 ? B ? 8 601 350 (ii) Assume that you purchased an 8%, 20-year, $1000 par, semi-annual payment bond priced at $1012.50 with 12 years remaining till maturity. Determine a. Promised yield to maturity b. Yield to call if the bond is callable in three years with 8% premium on par value. c. What would be the price of bond 3 years from now. (iii) Bonds of Francesca Corporation with a par value of $1000 sell for $960, mature in 5 years and have a 7% annual coupon paid semi-annually. Estimate a. Current yield b. Capital Gain Yield c. Promised Yield to maturity d. Realized or horizon yield for an investor with a three year holding period and reinvestment rate of 6% over the holding period. At the end of three years the 7% coupon bonds with 2 year remaining till maturity will sell to yield 7%. (iv) Discuss two…
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A 20-year bond with 8% annual coupons is purchased at a price of P. The face amount of the bond is F. The price assumes an annual effective yield rate of 4%. The change in book value of the bond during the 8th year is equal to 43.24. Calculate P. 2,315 2,470 2,625 2,780. E 3,085 Grade & Review >