An investor buys a five-year, 7.5% annual coupon bond priced to yield 5%. The investor plans to sell the bond in two years once the second coupon payment is received. a. Calculate the purchase price of the bond. b. Calculate the horizon yield assuming that the coupon reinvestment rate after the bond purchase and the YTM at the time of sale at 3.00% c. Calculate Macaulay Duration. (2 decimal places)

An investor buys a five-year, 7.5% annual coupon bond priced to yield 5%. The investor plans to sell the bond in two years once the second coupon payment is received. a. Calculate the purchase price of the bond. b. Calculate the horizon yield assuming that the coupon reinvestment rate after the bond purchase and the YTM at the time of sale at 3.00% c. Calculate Macaulay Duration. (2 decimal places)

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

See similar textbooks

Similar questions

You buy an 8-year, 3.30% annual - payment coupon bond priced to yield 5.30 %. You sell the bond at year - end, immediately after receiving the first coupon payment. Assuming the YTM stayed constant over the holding period, what are your capital gains from the sale of the bond? A. -0.09 B. -0.02 C. 0.02 D. 0.09
A person purchased a 10-year, 5 percent coupon (semiannual payments) bond for $1,050.00, what is the (annual) yield-to-maturity? Show the steps in solving it using Financial Calculator.
An investor buys an 8% annual payment bond with 3 years to maturity. The bond has a yield-to-maturity of 7%. Assume the par value is 100. The bond's modified duration is closest to: (Please provide the formula and steps to achieve both the macaulay duration and modified duration figure manully)
The following spot rates are available for periods 1 through 5, respectively; 1%, 2%, 3%, 4% and 5%. Assume annual coupon and annual compounding. a. Price a five years 2% coupon rate bond and calculate the bonds yield to maturity. b. Price a 11% coupon rate bond twice; first using the spot rate, second using section ‘a’ yield to maturity and briefly discuss any arbitrage opportunity if the bond is priced using the later method.
Consider a 10-year bond with a face value of $1,000 that has a coupon rate of 5.8%, with semiannual payments.
Consider a bond with semiannual interest payments that has a Settlement Date of 8/15/2020, a Maturity Date of 2/15/2031, a Coupon Rate of 5.00%, a Market Price of $975, a Face Value of $1,000, and a Required Return of 5.35%. What is the Macaulay Duration using the Duration function on these bonds expressed as a decimal calculated to two decimal places if you purchase them at the current market price? For example, if your answer is 12.345 then enter as 12.35 in the answer
A bond that has features: coupon of rate of 5 percent principal: $1,000 term to maturity: 10 years a. what will the holder receive when the bond matures? b. if the current rate of interest on comparable debt is 8 percent, what should be the price of this bond? would you expect the firm to call this bond? why? c. if the bond has a sinking fund that requires the firm to set aside annually with a trustee sufficient funds to retire the entire issue at maturity, how much must the firm remit each year for ten years if the fundas earn 8 percent annually and there is $100 million oustanding?
Bha
An investor purchases a 13-year, 5.5% annual coupon payment bond at a price equal to par value, After the bond is purchased and before the first coupon is received, interest rates increase by 1.2%. The investor sells the bond after 5 years. Assume that interest rates remain unchanged at 5.5+1.2% over the 5-year holding period. Assuming that all coupons are reinvested over the holding period, what is the investor's 5 year horizon yield?
2) You have a liability of 1,000 at the end of year 1 and another liability of L at the end of year 2. You create a portfolio of assets that exactly match your liabilities using the following available bonds with annual coupons: Term of bond Coupon Rate Yield Rate 3% 6% 1-year 2-year 5% 8% Find L if you invested 932 to purchase the 1-year bond.
A bond certificate with a value of P 1,081,038.07 has a par value of P 1,000,000.00 and a redemption price of P 1,030,000.00 at the end of 10 years . If the bond rate is 9% . Calculate the yield that the investor obtained from his investment .
An investor purchases a 10-year, 5.9% annual coupon payment bond at a price equal to par value. After the bond is purchased and before the first coupon is received, interest rates increase by 1.5%. The investor sells the bond after 7 years. Assume that interest rates remain unchanged at 5.9+1.5% over the 7-year holding period. Assuming that all coupons are reinvested over the holding period, what is the investor’s 7-year horizon yield?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS