An investor wishes to invest $200,000 in bonds that mature in 4 years Question 3. and earn a yield to maturity of at least 3% per year. Currently she can buy 4 year treasury bonds at $102 per bond that have a yield to maturity of 2%. She decides to also buy some 4 year corporate bonds at $90 per bond that have a yield to maturity of 4%. Find the four year growth factor for each type of investment and derive the equations that must hold if her portfolio has the desired yield to maturity, How many corporate bonds, and how many 4 year treasuries, should she buy to ensure this? Give an answer in integers. Then determine how much of each type of bond she buys and what the total cost actually is. What will be the actual value of this portfolio after 4 years and what is the actual annual yield?

An investor wishes to invest $200,000 in bonds that mature in 4 years Question 3. and earn a yield to maturity of at least 3% per year. Currently she can buy 4 year treasury bonds at $102 per bond that have a yield to maturity of 2%. She decides to also buy some 4 year corporate bonds at $90 per bond that have a yield to maturity of 4%. Find the four year growth factor for each type of investment and derive the equations that must hold if her portfolio has the desired yield to maturity, How many corporate bonds, and how many 4 year treasuries, should she buy to ensure this? Give an answer in integers. Then determine how much of each type of bond she buys and what the total cost actually is. What will be the actual value of this portfolio after 4 years and what is the actual annual yield?

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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Silvia is thinking about investing money into a bond to diversify her investments. Company X issued 12 bonds at a face value of $43500 and a 17.5% nominal interest rate paid semiannually to raise capital for an upcoming factory expansion. The face value of the bond is $43500. The bond is a 10 year bond. As the bond was issued, the current nominal interest rate in the market is 7.0% compounded monthly. What is the maximum price Silvia should be pay for a single bond from company X?
Use Excel or Google Open Source Spreadsheet for this problem: You own a 4 year bond that has a face value of $12,000 and pays 8% a year in interest, once a year, at the end of the year. Two years after buying it, the interest rate increases to 10%. You do not want to wait 2 more years to get your principle of $12,000 back because you really need the money, so you decide to sell it on the open market. 1. How much can you sell it for? 2. Would it be a capital loss or gain and how much? How much is the capital gain or loss?
Km for the following Individual or component costs of capital) Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this compute the cost of capital for the a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11.4 percent mat is paud semiannually. The bond is currently selling for a price of $1,121 and will mature in 10 years The firm's tax rate is 34 percent b. If the firm's bonds are not frequently traded, how would you go about determining a cost of debt for this company? A new common stock issue that paid a $174 dividend last year. The par value of the stock is $15, and the firm's dividends per share have grown at a rate of 81 percent per year. This growth rate is expected to continue into the foreseeable tuture The pnce of this stock is now $27 12 d. A preferred stock paying a 10.7 percent dividend on a $126 par value The preferred shares are currently selling for…
You have decided to invest in Corporate bonds. Your first bond investment (on Jan 2, 2021) is par value $1,000 DEF corporation bond, with a remaining maturity of 5 years, interest is paid semi-annual, the coupon rate is 4% (annual rate) and the effective market interest is 3% (annual rate). Calculate the amount you paid for the DEF bond on January 2, 2021 Calculate the amount of interest you will receive each year from the invest. How much cash will you receive at maturity for the bond?
Click here to view the factor table. https://education.wiley.com/content/Kieso_Intermediate_Accounting_17e/media/simulations/interest_rate_tables.pdf
Write the formula for the cost of capital. Explain how you would estimate each component of the cost of capital. Assume you would like to estimate the cost of debt for XYZ Company. XYZ’s bond has a semi-annual 5.25 % coupon rate and a par value of $1,000, with a market price of 86 percent of the par. Assume a number of years to maturity that has not been chosen by any other students between 10 to 50 years, then estimate the cost of debt for XYZ. Assume the beta of XYZ is 1.20, and the capital structure of XYZ is 70 % equity financing and 30 % debt financing, and the tax rate is 21 %. Estimate the cost of capital for XYZ Company.
The Chief Financial Officer of a company would like to raise money for new equipment by floating a new bond issue. The CFO would like to receive $1000 (full face value) for each of the bonds she sells. After collecting the below bond market data, and if the bonds carry a rating of A and have a term of 10 years, what coupon rate should be included in the bond contract? Assume an annual coupon payment. Security& Rating Maturity Face Coupon Price Treasury 1 $ 1,000 0.00% $ 965.00 Treasury 3 $ 1,000 1.90% $ 939.06 Treasury 5 $ 1,000 4.30% $ 932.42 Treasury 10 $ 1,000 6.80% $ 1,007.12 Treasury 15 $ 1,000 6.60% $ 908.25 CorpA A 5 $ 1,000 8.10% $ 990.00 CorpB BB 10 $ 1,000 7.90% $ 859.88 CorpC AA 15 $ 1,000 7.00% $ 660.00
Suppose you are trying to raise $63415947 to fund a project and you are going to use 42% debt. An American corporate bond has a coupon rate of 1.8% and matures in 25 years. If the yield to maturity for bonds similar to this one is 9.0%, what is the number of similar bonds you would need to sell to raise the necessary funds? Suppose you are trying to raise $71898234 to fund a project and you are going to use 46% debt. An American corporate bond has a coupon rate of 1.4% and matures in 24 years. If the yield to maturity for bonds similar to this one is 3.8%, what is the number of similar bonds you would need to sell to raise the necessary funds?

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