Absalom Energy's 8% coupon rate, semiannual payment, $1,000 par value bonds that mature in 20years are callable 6 years from now at a price of $1,025. The bonds sell at a price of $1,255.60, andthe yield curve is flat. Assuming that interest rates in the economy are expected to remain at theircurrent level, what is the best estimate of the nominal interest rate on new bonds issued in 6 years?Do not round intermediate calculations. Round your answer to two decimal places.%

Coupon rate = 8%Par value = $1000Maturity = 20 yearsCall year =6 yearsCall price = $1025Current…

Answered: Absalom Energy's 8% coupon rate,…

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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Imagine that, during a job interview, you are handed the following quotes on U.S. Treasuries: Bond Maturity Coupon rate Yield to (years) maturity 1 1 5% 4.5% 2 2 5% 5.0% 3 3 0% 5.0% Assume that the par value is $100 and coupons are paid annually, with the first coupon payment coming in exactly one year from now. The yield to maturity is also quoted as an annual rate. What should be the 1-year forward rate between years 2 and 3? a. 6.482% ○ a. O b. 6.137% c. 6.507% O d. 6.736% NAVA
Jennifer Davis is planning to buy 10-year zero-coupon bonds issued by the u.s. treasury. if these bonds have a face value of $1000 and are currently selling at $410.63, what is the effective annual yield? assume that interest compounds semiannually on similar coupon-paying bonds. round final answer to 2 decimal places.
A twenty-year government bond with a face value of 120$ makes annual coupon payments of 1% and offers a yield of 8% annually compounded.Suppose that one year later the bond yields at 5%. Showing your calculations,a) What return has bondholders earned over the 12-month period? Instead, suppose now that one year later the bond yields at 5.5%.b) What return has bondholders earned over the 12-month period?
A twenty-year government bond with a face value of 120$ makes annual coupon payments of 8% and offers a yield of 3% annually compounded. Suppose that one year later the bond yields at 4%. a) Is it good or bad news for bondholders? Explain b) What return has bondholders earned over the 12-month period? Please provide the details of your calculations and discuss your results. Instead, suppose now that one year later the bond yields at 5.5%. c) Is it good or bad news for bondholders? Explain d) What return has bondholders earned over the 12-month period? Please provide the details of your calculations and discuss your results.
A government bond pays coupons 11 times a year at an annual rate of 7.5%, has a face value of $1,500, and matures in 11 years. If the current market interest rate is 8.6% compounded annually (i.e., this is an effective rate), 1. What is the periodic market interest rate? (i.e., the rate every 1 th of a year) % (Give answer as a percentage to 6 decimal places) 2. What is the coupon amount paid each time? CAN $ (Give answer to 4 decimal places) 3. What is the current market price of the bond? $ (Give answer to 4 decimal places)
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Bond 8 has an 8% annual coupon, Bond 10 has a 10% annual coupon, and Bond 12 has a 12% annual coupon. Bond 10 sells at par. Assuming that interest rates remain constant for the next 10 years, which of the following statements is CORRECT? State your reason for the answer. Bond 8’s current yield will increase each year. Bond 8 sells at a discount (its price is less than par), and its price is expected to increase over the next year. Over the next year, Bond 8’s price is expected to decrease, Bond 10’s price is expected to stay the same, and Bond 12’s price is expected to increase. Since the bonds have the same YTM, they should all have the same price, and since interest rates are not expected to change, their prices should all remain at their current levels until maturity. Bond 12 sells at a premium (its price is greater than par), and its price is expected to increase over the next year.
3. The U.S. Government has a 20-year bond that matures 20 years from now and has a face value of $1,000. The bond has a coupon rate of 3.1% per year, paid semiannually. The yield on the bond is 8%. If coupons are reinvested at 3.6% per annum, then how much interest is earned on reinvested coupons over the life of the bond? Calculate the interest as a percentage of the total cash flows received by the bondholder. What is the amount of interest earned on reinvesting the coupons? $ (Round to the nearest cent.) What percentage of the total cash flows received by the bondholder is the interest earned on the reinvested coupons? % (Round to two decimal places.)
Absalom Energy’s 14% coupon rate, semiannual payment, $1,000 par valuebonds that mature in 30 years are callable 5 years from now at a price of$1,050. The bonds sell at a price of $1,353.54, and the yield curve is flat.Assuming that interest rates in the economy are expected to remain at theircurrent level, what is the best estimate of the nominal interest rate on newbonds issued in 5 years?
Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon US Treasury note with two years to maturity has a coupon rate of 4%. The yield to maturity (YTM) of the bond is 8.80%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: $913,697.55 $1,096,437.06 $776,642.92 $575,629.46 Based on your calculations and understanding of se The T-note described in this problem is selling at a discount premium pupon bonds, complete the following statement:
A twenty-year government bond with a face value of 120$ makes annual coupon payments of 1% and offers a yield of 8% annually compounded.Suppose that one year later the bond yields at 5%.a) Is it good or bad news for bondholders? b) What return has bondholders earned over the 12-month period? Instead, suppose now that one year later the bond yields at 5.5%.c) Is it good or bad news for bondholders?d) What return has bondholders earned over the 12-month period?
Valuing semiannual coupon bonds Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon U.S. Treasury note with three years to maturity has a coupon rate of 3%. The yield to maturity (YTM) of the bond is 11.00%. Using this information and ignoring the other costs involved, calculate the value of the Treasury note: $504,112.64 $800,178.79 $960,214.55 $680,151.97 Based on your calculations and understanding of semiannual coupon bonds, complete the following statements: • Assuming that

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