a) Bonds of TLM Corporation with a par value of R1000 sell for R960, mature in five years, and have a 7% annual coupon rate paid semi-annually. Calculate the current yield and the yield to maturity b) Assume a 10-year, $1,000 par value bond with a 10 percent annual coupon if its required rate of return is 10 percent what is the value of the bond? i) What would be the value of the bond described in part b if, just after it had been issued, the expected inflation rate rose by 3 percentage points? Would we now have a discount or a premium bond? 11) What would happen to the bonds' value if inflation fell, by 3 %? Would we now have a premium or a discount bond?
a) Bonds of TLM Corporation with a par value of R1000 sell for R960, mature in five years, and have a 7% annual coupon rate paid semi-annually. Calculate the current yield and the yield to maturity b) Assume a 10-year, $1,000 par value bond with a 10 percent annual coupon if its required rate of return is 10 percent what is the value of the bond? i) What would be the value of the bond described in part b if, just after it had been issued, the expected inflation rate rose by 3 percentage points? Would we now have a discount or a premium bond? 11) What would happen to the bonds' value if inflation fell, by 3 %? Would we now have a premium or a discount bond?
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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Transcribed Image Text:a) Bonds of TLM Corporation with a par value of R1000 sell for R960, mature in five years, and
have a 7% annual coupon rate paid semi-annually.
Calculate the current yield and the yield to maturity
b) Assume a 10-year, $1,000 par value bond with a 10 percent annual coupon if its required rate
of return is 10 percent what is the value of the bond?
i) What would be the value of the bond described in part b if, just after it had been issued, the
expected inflation rate rose by 3 percentage points? Would we now have a discount or a
premium bond?
11) What would happen to the bonds' value if inflation fell, by 3 %? Would we now have a
premium or a discount bond?
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