A A zero Coupon IS a bond that is Sold now at a discount and will pay its Cace value at Some time in the future when it matures - no inlerest pay.ments are made. A 2ero Coupon bond with a Cace value of 23000 matures in 13 Years. What should the bond be Sold for now if its rale of return is to be bib lo Compounded semiannually? A fair price to buy the bond at would be

A A zero Coupon IS a bond that is Sold now at a discount and will pay its Cace value at Some time in the future when it matures - no inlerest pay.ments are made. A 2ero Coupon bond with a Cace value of 23000 matures in 13 Years. What should the bond be Sold for now if its rale of return is to be bib lo Compounded semiannually? A fair price to buy the bond at would be

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 the current yield on a one-year zero-coupon bond is 4%, while the yield on a five-year zero-coupon bond is 6%. Neither bond has any risk of default. Suppose you plan to invest for one year. You will earn more over the year by investing in the five-year bond as long as its yield does not rise above what level? (Assume $1 face value bond.) Hint: It is best not to round intermediate calculations-make sure to carry at least four decimal places in intermediate calculations. Note: Assume annual compounding. The yield should not rise above %. (Round to two decimal places.)
2. Consider a 15-year semiannual floating rate bond with coupon rate determined with the following formula: Coupon rate = reference rate + 65bps What’s the discount margin of the bond if the bond price is 99.5730 and current reference rate is 9%?
The one-year spot rate z1 = 5% and the forward price for a one-year zero-coupon bond beginning in one year is 0.9346. Find the spot price (zero price) of a two-year zero-coupon bond.
The market price of a 100 TL nominal value treasury bill is 94 TL and has 75 days to maturity. What is the maturity yield of this bonus? (How much return will he get if he buys this bond and holds it for 75 days?) A-) %6,38 B-) %7,05 C-) %6,96 D-) %5,33 E-) %6,67
A 6.60 percent coupon bond with 15 years left to maturity is priced to offer a 5.3 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.0 percent. What would be the total return of the bond in dollars? (Assume interest payments are semiannual) (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.) Total return S 10 47 What would be the total return of the bond in percent? (Assume interest payments are semiannual) (Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.) Total return
2
Assume the SEP 10-yr T-Note Future just settled at a price of 152-17. The cheapest- to-deliver (CTD) Treasury bond costs 133-12 in the market, has a term of exactly 21 years left and carries a coupon of 4.0%. With respect to settling the Future, which of the following statements is accurate when the above CTD bond is delivered? The Long will pay $116,379 to the Short The Long will pay $134,455 to the Short The Long will pay $176,439 to the Short The Long will pay $137,100 to the Short The Long will pay $151,304 to the Short
Suppose the investor sells his bonds before maturity and uses some of the proceeds to purchase a zero-coupon T-Bill with a $100 face value and 6-month maturity. What is the effective annual rate (EAR) if it was purchased for $95.52?
Consider a coupon bond, period t = 0 price $900, with payments: t=0 1 2 3 50 50 1050 Discount (zero coupon) bonds of 1, 2 and 3 years maturity (all with maturity value of $1000) sell for respectively, 960, 900, 820 dollars. Is this coupon bond properly priced? If not, design an arbitrage argument to profit by the mispricing.
Please do not give solution in image formate thanku. A 2-year maturity bond with face value of $1,000 makes annual coupon payments of $96 and is selling at face value. What will be the annual rate of return on the bond if its yield to maturity at the end of the year is a. 6%? Rate of return in % = ? b. 9.6%? Rate of return in % = ? c. 11.6%? Rate of return in % = ?
A 1-year Treasury bond currently yields 6.0%, and a 2-year bond yields 7.0%. Mr. A, an investor who want to invest for a 2-year horizon is choosing between buying the 2-year security and hold it for 2 years and buy a 1-year security and hold it for 1 year and reinvest the proceeds in another 1-year security. Holding the pure expectation theory, what would be the rate of the 1-year rate 1 year from now so that options of Mr. A will be indifferent? 8% 6% 7% 6.5%
4. (i) A forward contract written on a bond has 10 months remaining until maturity. The face value of the bond is $1000, and it pays a 7% coupon every 6 months. The final coupon is due immediately prior to the maturity of the forward. The relevant riskless rate of interest is 5%. If the bond is trading at $1025, calculate the theoretical forward price and initial value of the forward contract and explain the forward pricing relationship. (ii) Provide numerical examples of arbitrage strategies for situations where a broker offers a price above, and below the theoretical forward price.

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