An investor buys a discount bond that pays him $65,000 after 6 years. The nominal interest rate for the first year is 5% and it decreases by 90 basis points (100 basis points=1%) up to the third yeaand then increases by 75 basis points thereafter, due to changes in government policy. If the investor sells his policy in four years to a businessman, what will be the yield to maturity and price for thebusinessman, assuming that the expectations hypothesis holds?The price of the bond at the fourth year $Vield to maturity for the businessman during the purchase=%(Round your answer to two decimal places)Suppose that, for the same bond the yield to maturity at the third year is 6.55% and there is a constant risk premium (x) applicable for holding the bond. What will be the value of ?*-%(Round your answer to two decimal places)

Yield to maturity is the return one gets for the risk of holding the bond for the said period.It is…

Answered: An investor buys a discount bond that…

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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An investor is considering the purchase of Security X, which matures in 10 years with a par value of $1,000. During the first five years X has a 6 percent coupon with semiannual payments. During the remaining five years X has an 8 percent coupon with semiannual payments. At maturity, the face value is paid. A second 10-year security, Security Z, has a 6 percent semiannual coupon and is selling at par. Assuming that X has the same bond equivalent yield as Z, what is the price of Security X? O $943 O $1,052 $1,063 $1,009 O $1,021
1
Angelo purchased a 7% annual coupon bond one year ago for $987. At the time of purchase, the bond had six years to maturity. Over the past year inflation has been 3.2%. The market required return on this bond today is 8%. If Angelo sells the bond today at the market price, what real rate of return will he realize on this investment? -1.16% 1.13% 4.36% 4.33% 1.17%
Assume you purchase a 20-year zero coupon bond with a yield of 5%. One year later the yield drops 50 basis points. calculate the holding period return Please show how to solve it using a financial calculator
You have $1,000 to invest for two years and have two choices: Alternative 1: 2-year zero coupon bond selling at a price of 92. Altemative 2: A bank deposit which pays according to the following rates: 1 year spot rate 3 year spot rate 1 year forward rate two years from now 3.0% 4.5% 4.0% Analyse the altematives to detemine the amount received from each alternative at the end of two years. (Give answer to nearest dollar)
You bought one of Elkins Manufacturing Co.'s 6.8 percent coupon bonds one year ago for $1,054. These bonds make annual payments, mature 15 years from now, and have a par value of $1,000. Suppose you decide to sell your bonds today, when the required return on the bonds is 5 percent. If the inflation rate was 3.6 percent over the past year, what would be your total real return on the investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Total real return %
I am thinking about buying a $100 heineken corporate bond. The bond was issued on Nov. 2005 with a coupon rate of 7.5% per year and it matures on Oct. 31, 2025. If I purchase the bond on Nov. 1, 2021 for $93.12, will I earn a return at least 8.0% per year (nominal) on the investment? Assume coupons are paid twice per year (on April 30 and October 31). You must draw a cash flow diagram to get full credit for this problem.
A corporation is planning to sell its 90 - day commercial paper to investors offering a 10.2 percent yield. If the liquidity premium is estimated to be 0.2 percent, and there is a 0.4 percent tax adjustment. Also, the three month real annualized rate is 5.6 percent and expected inflation is 1.1 percent. What is the appropriate default premium?
Assume you can buy a bond that has a par value of $1000, matures in 10 years, yielding 6% and has a duration of 5. If you would like to use this bond to form a guaranteed investment contract “GIC” and offer a guaranteed rate of return to investors for certain years. a. what is the maximum yield you can offer? Why? Explain. b. For how many years would you make the guarantee? Explain.
bhavuben
An investor considers to invest 100 000 TL for the next year. This investor has 3 options. The first option is to buy a government bond that sells 100 TL. The par value of this government bond is also 100 TL and the remaining maturity is 1 year. This government bonds %20 annual coupon interest. The second option is to buy a commercial paper which sells 2200 TL discount. The par value is 10 000 TL and the maturity is 1 year. The other alternative is to invest in a common stock for a year. The current market price of the common stock is 6 TL per share and 1 year target price estimation of the market analysts is 8.2 TL on average for this share. Which option or options would you invest in and why? Show your answer mathematically.
You are selected as an analysis to manage a fixed income portfolio for a client in particular a corporate bond. You are considering a 3-year floating rate note with 1 year benchmark rate of 2.88%. It is priced at 685 of 1000 par value. Your analysis tells you probability of default is approximately 40%. If the issue survives over the next three years due to the industry it is in. The probability of default for each year is 9% and a volatility of 12%. What is the price of the bond

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