An investor is considering the purchase of a(n) 8.375 %, 15-year corporate bond that's being priced to yield 10.375 %. She thinks that in a year, this bond will be priced in the market to yield 9.375 %. 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.) CHE

An investor is considering the purchase of a(n) 8.375 %, 15-year corporate bond that's being priced to yield 10.375 %. She thinks that in a year, this bond will be priced in the market to yield 9.375 %. 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.) CHE

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 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.
Suppose that you bought a 14% Drexler bond with time to maturity of 9 years for $1,379.75 (semiannual coupons, interest rate=8%). After another ½ year, you sold the bond. Assuming that the required rate of return remained at 8%, what would the selling price be? What is the rate of return from this investment? If the interest rate dropped by 25 basis points, what would the selling price be? What would the rate of return from this investment be?
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 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?
You are considering the purchase of a 20-year bond with an annual coupon rate of 9.5%. The bond has a face value of $1,000. You require a 12% nominal yield to maturity on this investment. If the bond makes annual interest payments, what is the maximum price you should be willing to pay for the bond? If the bond makes semiannual interest payments, what is the maximum price you should be willing to pay for the bond?
Suppose you bought a 5 year coupon bond with par value $1,000 and coupon rate 5% when the market yield was 3.5%. Two years (after two coupon payments) later the market yield is 2% and you decide to sell the bond at a market price. What is the IRR on your investment? State your answer as a number rounded to 4 decimal points
An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 6% annual coupon. Bond L matures in 12 years, while Bond S matures in 1 year. Assume that only one more interest payment is to be made on Bond S at its maturity and that 12 more payments are to be made on Bond L. What will the value of the Bond S be if the going interest rate is 12%? Round your answer to the nearest cent.
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?
suppose an investor has a 5 year investment horizon. He purchased an 8 year paying an 8% annual coupon rate while the bond's initial annual yield to maturity is 6%. The bond makes coupon payments semi-annually. The investor expects that he can reinvest the coupon at an annual interest rate of 7%. At the beginning of year 6, he expects the then yield to maturity to be 7% what is the total return for this bond
Suppose an investor has a 5-year investment horizon. He purchased an 8-year paying an 8% annual coupon rate while the bond's initial annual yield to maturity is 6%. The bond makes coupon payments semi-annually. The investor expects that he can reinvest the coupon at an annual interest rate of 7%. At the beginning of year 6, he expects the then yield to maturity to be 7%. What is the total return for this bond?
Ruth Hornsby is looking to invest in a three-year bond that makes semiannual coupon payments at a rate of 6.19 percent. If these bonds have a market price of $891.84, what yield to maturity and effective annual yield can she expect to earn?

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