An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 10.50% annual coupon. Bond Alpha matures in 5 years, while Bond Beta matures in 1 year. a) What will the value of each bond be if the going interest rate is 11%? b) Which bond will have the greater percentage change in price if interest rates Increase by 1 percentage point? a) Alpha= $981.52; Beta = $995.50 b) Alpha ill have a greater percentage change in price. a) Alpha= $981.52; Beta = $995.50 b) Beta will have a greater percentage change in price. a) Alpha= $1,000.00; Beta= $981.52 b) Alpha will have a greater percentage change in price. a) Alpha= $995.50; Beta $981.52 b) Beta will have a greater percentage change in price. a) Alpha= $995.50; Beta= $1,000.00 b) Alpha will have a greater percentage change in price.

An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 10.50% annual coupon. Bond Alpha matures in 5 years, while Bond Beta matures in 1 year. a) What will the value of each bond be if the going interest rate is 11%? b) Which bond will have the greater percentage change in price if interest rates Increase by 1 percentage point? a) Alpha= $981.52; Beta = $995.50 b) Alpha ill have a greater percentage change in price. a) Alpha= $981.52; Beta = $995.50 b) Beta will have a greater percentage change in price. a) Alpha= $1,000.00; Beta= $981.52 b) Alpha will have a greater percentage change in price. a) Alpha= $995.50; Beta $981.52 b) Beta will have a greater percentage change in price. a) Alpha= $995.50; Beta= $1,000.00 b) Alpha will have a greater percentage change in price.

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

For the following questions, assume the normal case that coupon payments are semi-annual. a. What is the yield to maturity on a 12-year, 6.2% coupon bond if the bond is currently selling for $1,000? b. For the bond above, suppose that immediately after purchase market rates change to 3.60%. If you hold the bond for 4 years and then sell it, what is your effective annual return on this investment? % (enter response rounded to decimal places; i.e., x.xx%) b. Your effective annual return is % (enter response rounded to decimal places; i.e., x.xx%) a. The YTM is
An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 12% annual coupon. Bond L matures in 15 years, while Bond S matures in 1 year. a. What will the value of the Bond L be if the going interest rate is 6%, 8%, and 13% ? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made on Bond L. Round your answers to the nearest cent. 6% Bond L $ Bond S $ $ $ -Select- 8% $ $ 13% b. Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change? I. Long-term bonds have lower reinvestment rate risk than do short-term bonds. II. The change in price due to a change in the required rate of return increases as a bond's maturity decreases. III. Long-term bonds have greater interest rate risk than do short-term bonds. IV. The change in price due to a change in the required rate of return decreases as a bond's maturity increases. V. Long-term bonds have…
Suppose you buy a bond with a coupon of 8.2 percent today for $1,100. The bond has 7 years to maturity. Assume interest payments are reinvested at the original YTM. a. What rate of return do you expect to earn on your investment? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Rate of return % b. Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. What price will your bond sell for? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Price
Suppose a 5% coupon, 4 year bond is selling for $990. The face value is $1000. The coupon ispaid every six months. Answer the following questions. (a) Calculate the yield to maturity of this bond. (b) Calculate the price of this bond if the yield to maturity increases by 1% with maturityunchanged. (c) Calculate the price of this bond if the yield to maturity decreases by 1% with maturityunchanged.
Suppose you purchase a 10-year bond with 6.3% annual coupons. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 4.6% when you purchased and sold the bond, A)What cash flows will you pay and receive from your investment in the bond per $100 face value? B)What is the annual rate of return of your investment?
A newly issued bond with 1 year to maturity has a price of $1,000, which equals its face value. The coupon rate is 15% and the probability of default in 1 year is 35%. The bond’s payoff in default will be 65% of its face value. a. Calculate the bond’s expected return. b. Use a data table to show the expected return as a function of the recovery percentage and the price of the bond. Please show how you got part B using all functions.
A 5-year bond with a yield of 4% (continuously compounded), with a face value of $100, pays an 3% coupon at the end of each year. What is the bond’s price? (You can use your calculations for the next questions) A 5-year bond with a yield of 4% (continuously compounded) pays an 3% coupon at the end of each year. What is the bond’s duration? Use the calculations from the previous problem to make it easier, and you can use your duration answer for the following question.
Suppose you purchase a ten-year bond with 12% annual coupons. You hold the bond for four years and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 10.64% when you purchased and sold the bond, a. What cash flows will you pay and receive from your investment in the bond per $100 face value? b. What is the internal rate of return of your investment? Note: Assume annual compounding. a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flow at time 1-3 is $ (Round to the nearest cent. Enter a cash outflow as a negative number.) The cash outflow at time 0 is $ number.) (Round to the nearest cent. Enter a cash outflow as a negative The total cash flow at time 4 (after the fourth coupon) is $. (Round to the nearest cent. Enter a cash outflow as a negative number.) b. What is the internal rate of return of your investment? The internal rate of return of your investment is %. (Round to two decimal…
Consider a 30-year Bond with $1,000 face value, which offers 10% annual coupon, paid once a year.Assume that interest rates, hence YTM (Yield to Maturity) changed from 6% to 7%. What is the duration of the Bond in years? Enter your answer in the following format: 12.34Hint1: Answer is between 10.24 and 12.77Hint2: Duration = (new bond price - old bond price) * (-100) / old bond price
Suppose you purchase a $1,000 bond with a coupon rate of 8% matures in 5 years at par, and you plan to sell it at the end of 3 years at the prevailing market price. When you purchase the bond, your investment advisor predicts that similar bonds with 2 years to maturity yield at 6%. What is the expected yield to maturity on the bond?
a) A bond has 15 years left to maturity. The annual coupon rate is 9%, and face value is $1,000. If the YTM = 12%, what is the bond price? b) An annual coupon bond has coupon payment = $500, YTM =8%, and maturity = 5 years. If the price ofthe bond is $9,400, what must be the face value? c)A bond has 15 years left to maturity. The semi-annual coupon rate is 9%, and face value is $1,000. If the YTM = 12%, what is the bond price? for all 3 parts please show all calculations via excel, and how you got them in excel (formulas). thanks.
Firm ABC has a bond with face value of $100, coupon rate of 6%, and a 10-years maturity. Firm ABC makes semi-annual coupon payments. Investors require a return of 7%. (1) What is the present value of all coupon payments? (2) What is the present value of face value? (3) What is the value of the bond? (4) If the price of the bond is $100, will you invest in such a bond? (5) If interest rate goes up by 2%, what will be the value of the bond? (6) What will be the rate of change in the value of the bond compared to the value of (3) above?

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