A. You are offered to buy a 4-year coupon corporate bond in the beginning of its 7th month on its third year for $963.94. Its face value is $1,000 and its coupon rate is 5.172% p.a. with coupon paid at the end of each quarter. Government bond rate now is 6.9%. (a) Is $963.94 a good price for you to buy it or not? What is the fair price for the bond? (b) What is the yield if you buy at the price that you have been offered? (c) If the government bond rate suddenly goes down to 4.7%, what will be the new fair value of the bond?

A. You are offered to buy a 4-year coupon corporate bond in the beginning of its 7th month on its third year for $963.94. Its face value is $1,000 and its coupon rate is 5.172% p.a. with coupon paid at the end of each quarter. Government bond rate now is 6.9%. (a) Is $963.94 a good price for you to buy it or not? What is the fair price for the bond? (b) What is the yield if you buy at the price that you have been offered? (c) If the government bond rate suddenly goes down to 4.7%, what will be the new fair value of the 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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Suppose you want to purchase a bond with a $1,000 par value maturing in 4 years with an 8% annual coupon interest rate, and has a market interest rate of 6%. What’s the price or the value of this bond? Select one: a. $1,069.31 b. $1,000 c. $9712 d. 927.66
Suppose you want to purchase a bond with a $1,000 par value maturing in 10 years with a 12 % annual coupon interest rate, and has market interest rate of 8%. What’s the price or value of this bond? Select one: a. $1,000 b. $1,268.4 c. $805.20 d. $851.8
A U.S. Treasury bond pays 7.6 percent interest. You are in the 22 percent tax bracket. 5.93 is the after tax-yield on this bond. If you face a 22% marginal tax rate, what is your after-tax return on each of the following bonds? A 8.6% coupon semiannual corporate bond with 7 years to maturity, currently selling for $950. Don't round steps. 2 decimal answer. _% A 5.8% coupon semiannual corporate bond with 6 years to maturity, currently selling for $1,015. Don't round steps, 2 decimal answer. _% A 4.8% coupon semiannual municipal bond with 11 years to maturity, currently selling for $1,016. Don't round steps. 2 decimal answer. _%
A4) Why C?
7. Suppose you are deciding whether or not to buy a particular bond for $2,990.08. If you buy the bond and hold it for 5 years, then at that time you will receive a payment of $5,000. You will buy the bond today if the interest rate is a. no less than 9.48 percent. b. no greater than 9.48 percent. c. no less than 10.83 percent. d. no greater than 10.83 percent.
H10.
B
1. Suppose that someone wanted to buy a $1,000 face value T-bond that matures in November 2001. How much would it have cost on Black Monday? Answer: S per $1,000 face value
Choose the right letter 1. You are considering purchasing only one of the two bonds issued 24 Hours Corporation. Bond A and Bond B have a 7% coupon and 9% coupon, respectively; both are paid annually. The two bonds have a face value of Php 1,000 and will mature in 10 years. Assume that the yield to maturity of 8% for both bonds will remain unchanged over the next 10 years. Which of the following statements is most correct? A. Today, Bond B has a lower price than Bond A, but one year from now, the price of both bonds will be the same. B. Today, Bond B has a higher price than Bond A, but two years from now, the price of both bonds will be the same. C. Today, both bonds have the same price, and the price of each bond is expected to remain constant until the bonds mature. D. One year from now, the price of Bond A will be higher than its price today. E. The current yield of Bond A is greater than 8 percent. 2. Which of the following statements…
Yesterday you paid $1000 for a 6% coupon, $1000 face value 5-year bond. It is callable at the end year 1(after it makes the first year-end coupon payment) for $1100. The annual discount rate on this bond has just fallen to 2%. What will this bond be selling for today? If you had intended to hold this bond until it matured, how much money did the call provision cost you in total over all five years?
9
a. An 8 ½%, 25-year, $1,000 bond is presently selling at a yield-to-maturity (YTM) of 9 4%. Assuming annual interest payments, what should you pay for the bond? b. What should you pay if interest is paid semiannually? c. Instead of a 25-year bond, they decide to issue 15-year bonds with annual payments. What should you pay for this bond if the YTM is 9 4%? Explain the differences in prices changes for (3a) and (3c) in terms of maturity. d. You buy an 8%, 15-year, $1,000 bond that pays interest annually when it is selling with a YTM of 7%. Immediately after you buy the bond, the YTM increases to 9%. What was the percentage change in the price of the bond? A bond has a market price that exceeds its face value. What type of bond is this? Describe the relationship between the coupon rate and the YTM. е.

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