A client is considering an investment in an 8%, $1,000 par value, 5-year Government of Canada bond. Assuming a discount rate of 6%, and semi-annual coupon payments, what should the client pay for this bond? O a) Not pay more than $1,060. Ob) Not pay more than $1,085.30. Oc) Not pay more than $1,084.25. Od) Not pay more than $1,000.

A client is considering an investment in an 8%, $1,000 par value, 5-year Government of Canada bond. Assuming a discount rate of 6%, and semi-annual coupon payments, what should the client pay for this bond? O a) Not pay more than $1,060. Ob) Not pay more than $1,085.30. Oc) Not pay more than $1,084.25. Od) Not pay more than $1,000.

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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Determine the price of a $380,000 bond issue under each of the following independent assumptions: Note: Use tables, Excel, or a financial calculator. Round your intermediate calculations and final answer to the nearest whole dollar. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) 1. 2 N 3. Face value 380,000 380,000 380,000 Maturity 10 years 10 years 20 years Interest Paid annually semiannually semiannually Stated Rate 11% 11% 10% Effective Rate 11% 12% 10% Price
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Consider a one-year, 5-percent coupon bond with a face value of $100 issued by a Seabass Corporation. There is a 10 percent probability that it will default on its bonds and the risk-free interest rate (i) is 3.0%. If an investor were willing to pay $917.48 for the bond, is that investor risk-neutral or risk averse
(i) If investors have demanded an interest rate of 5 percent on the bond investment, what is the maximum prices to pay for the 1-year bond and 30-year bond? (ii) Suppose that the interest rate has increased to 20%, calculate the values of the 1-yearbond and 30-year bond.(iii) Based on the calculations in parts (b) (i) and (ii) above, explain with reasons thefundamental relationship between interest rates and bond maturity. (iv) Briefly explain the meaning of the terms “bond’s coupon rate”, “current yield”, and“yield to maturity”. (v) Explain why bonds have protective covenants.
According to the expectations theory, what will be the interest rate on a three-year bond if the two-year term premium is 1.0% while the three-year term premium is 2.0%, and a one-year bond has an interest rate of 4% and is expected to have an interest rate of 5% next year and 6% in two year? Select one: Oa. 6.0% O b. 15.0% Oc. 5.0% O d. 4.0%
Consider a two-year coupon bond issued by an airline with Face Value of $1,000, Coupon Rate of 3%, Annual Default Probability of 5%, & Risk-Free Interest Rate of 3% per year. Use a binomial tree to value the bond assuming no recovery. Show your work & write your answer in dollars and cents below. The value (price, expected present value, etc.) of the bond is _______.
Give typing answer with explanation and conclusion
Suppose your firm issues a €100,000,000 5-year bond with a coupon rate of 8% per annum (assume annual compounding). The bond will sell at face value to investors. The underwriting spread is an up-front fee of 2%. What is the actual cost of this debt? Please enter your answer as % -- e.g. if your answer is 2.34% type in 2.34.
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
Suppose your company needs to raise $35.8 million and you want to issue 23- year bonds for this purpose. Assume the required return on your bond issue will be 8.3 percent, and you?re evaluating two issue alternatives: a 8.3 percent semiannual coupon bond and a zero coupon bond. Your company's tax rate is 35 percent. Requirement 1: (a) How many of the coupon bonds would you need to issue to raise the $35.8 million? (b) How many of the zeroes would you need to issue? Requirement 2: (a) In 23 years, what will your company's repayment be if you issue the coupon bonds? (b) What if you issue the zeroes? Requirement 3: Assume that the IRS amortization rules apply for the zero coupon bonds. Calculate the firm's aftertax cash outflows for the first year under the two different scenarios.
Suppose that you are interested in purchasing a bond issued by the VPI Corporation. The bond is quoted in the Wall Street Journal as selling for 89.665. How much will you pay for the bond if you purchase it at the quoted price? Assuming you hold the bond until maturity, how much will you receive at that time? If you purchase the bond at the quoted price, you would pay $. (Round to the nearest cent) Assuming you hold the bond until maturity, you would receive $ (Round to the nearest dollar)
A bond: pay $75 each year in interest, and a $1,000 payment at maturity. The $1,000 is called? A) couponB) face valueC) discountD) yield

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