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.)

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.)

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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Suppose you purchased a ten-year, 8% coupon bond(annual coupon payment) at $980. Two years later, you decide to take a vacation and sell the bond to acquire the necessary funds. At the time you sell the bond, eight-year bonds with similar characteristics sell for yields of 9%. What is your realized yield on the bond?
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.
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.
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?
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.
You wish to sell a bond that has a face valueof $5,000. The bond bears an interest rate of 7.5%,which is payable quarterly. Six years ago, the bondwas purchased at $4,800. At least a 9% annual returnon the investment is desired. What must be the minimum selling price of the bond now in order to makethe desired return on the investment?
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?
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
Assume that the Pure Expectations Theory of the term structure is correct. Also assume that the interest rate today on a 9-year security is 6.40%, while the interest rate today on a 15-year security is 8.00%. Finally assume that the interest rate on a 3-year security to be bought at Year 9 and held over Years 10, 11, and 12 is 6.80%. Given this information, determine the average annual return that investors today must expect that they will receive from investing in a 3-year security in 12 Years (that is, buying the security at Year 12 and holding it over Years 13, 14, and 15). O 13.00% O 12.50% 13.50% O 12.00% O 14.00%

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