An investor is considering the purchase of a(n) 6.000 %, 15-year corporate bond that's being priced to yield 8.000%. She thinks that in a year, this bond will be priced in the market to yield 7.000 % . Using annual compounding, find the price of the bond today and in 1 year. Next, find the holding period return on this investment, assuming that the investor's expectations are borne out.

An investor is considering the purchase of a(n) 6.000 %, 15-year corporate bond that's being priced to yield 8.000%. She thinks that in a year, this bond will be priced in the market to yield 7.000 % . Using annual compounding, find the price of the bond today and in 1 year. Next, find the holding period return on this investment, assuming that the investor's expectations are borne out.

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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If you purchased a bond one year ago for $1000 and just sold it for $1100 after receiving the $50 annual coupon payment, then what was your real return on the investment if theinflation rate was 2.1% for the same year?
At the beginning of the year, you bought a $1,000 par value corporate bond with an annual coupon rate of 8 percent and a maturity date of 19 years. When you bought the bond, it had an expected yield to maturity of 13 percent. Today the bond sells for $ 760. 1. What did you pay for the bond? 2. If you sold the bond at the end of the year, what would be your one-period return on the investment? Assume that you did not receive any interest payment during the holding period.
After careful consideration, you decide that you want to diversify your portfolio and invest in the bonds of HCA Healthcare. The bonds pay interest annually, will mature in 25 years, and have a coupon rate of 4% on a face value of $1,000. Currently, the bonds are selling for $910. If you are looking for a required return of 7% for this bond, what is the highest price you would be willing to pay?What is the current yield of these bonds?What is the yield to maturity on these bonds if you purchase them at the current price? (Use the Rate function) If you hold the bonds for two years, and interest rates do not change, what total rate of return will you earn, assuming that you pay the market price? If the bonds can be called in 4 years with a call premium of 6% of the face value, what is the yield to call?
An investor is considering the purchase of a(n) 6.000%, 15-year corporate bond that's being priced to yield 8.000%. She thinks that in a year, this bond will be priced in the market to yield 7.000%. Using annual compounding, find the price of the bond today and in 1 year. Next, find the holding period return on this investment, assuming that the investor's expectations are borne out. The price of the bond today is $ (Round to the nearest cent.)
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.
Help me please
The ARA Corporation bonds have a coupon of 14%, pay interest semi-annually, and they will mature in 7 years. Your required rate of return for such an investment is 10% annually. How much should an investor pay for a $1,000 ARA Corporation bond? discuss reasons why an investor should choose to purchase bonds over stocks given the risk profile
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.
As an investor with a two-year desired holding period, you have the option of buying a one-year fixed coupon bond now yielding 12% or a two-year fixed coupon bond yielding 11%. If the current forward rate of interest on future one-year bonds to be delivered one year hence were 9%, which investment would you select?
The ARA Corporation bonds have a coupon of 14%, pay interest semiannually, and they will mature in 7 years. Your required rate of return for such an investment is 10% annually. Required: (a) How much should an investor pay for a $1,000 ARA Corporation bond? (b) Discuss reasons why an investor should choose to purchase bonds over stocks given his risk profile.
An investor is considering the purchase of a bond. The bond has a face value of $1000 and an interest rate of 6%; it pays interest once a year and matures in 8 years. This investor’s real MARR is 25%. If the investor expects an inflation rate of 4% per year for the next 8 years, how much should he be willing to pay for the bond?
What is the expected annual return over four years for the second strategy? Information from prior: An investor is presented with the following two alternative strategies: (1) Purchase a 4-year bond with an interest rate of 8.45% and hold it until maturity, or (2) purchase a 1-year bond with an interest rate of 8.00% and when it matures, purchase another 1-year bond with an expected rate of 7.75% and when that matures, purchase another 1-year bond with an interest rate of 7.50%. The investor can purchase a fourth 1-year bond with an interest rate of 9.00%.

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