Assume you have a one-year investment horizon and are trying to choose among three bonds. All have the same degree of defaultrisk and mature in 8 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has a 7.3% coupon rate and paysthe $73 coupon once per year. The third has a 9.3% coupon rate and pays the $93 coupon once per year. Assume that all bonds arecompounded annually.Required:a. If all three bonds are now priced to yield 7.3% to maturity, what are their prices?Note: Do not round intermediate calculations. Round your answers to 2 decimal places.Zero7.3% Coupon 9.3% CouponCurrent pricesb. If you expect their yields to maturity to be 7.3% at the beginning of next year, what will their prices be then?Note: Do not round intermediate calculations. Round your answers to 2 decimal places.Zero7.3% Coupon 9.3% CouponPrice one year from nowc. What is your rate of return on each bond during the one-year holding period?Note: Do not round intermediate calculations. Round your answers to 2 decimal places.ZeroRate of return7.3% Coupon 9.3% Coupon

The problem involves the determination of the bond price or bond value. Bond valuation is a…

Answered: Assume you have a one-year investment…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 4P

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Assume you have a one-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 8 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 8.2% coupon rate and pays the $82 coupon once per year. The third has a 10.2% coupon rate and pays the $102 coupon once per year. Assume that all bonds are compounded annually. Required: a. If all three bonds are now priced to yield 8.2% to maturity, what are their prices? (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. If you expect their yields to maturity to be 8.2% at the beginning of next year, what will their prices be then? (Do not round intermediate calculations. Round your answers to 2 decimal places.) c. What is your rate of return on each bond during the one-year holding period? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Assume you have a 1-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 7.6% coupon rate and pays the $76 coupon once per year. The third has a 8.6% coupon rate and pays the $86 coupon once per year. a. If all three bonds are now priced to yield 6% to maturity, what are the prices of: (i) the zero-coupon bond; (ii) the 7.6% coupon bond; (iii) the 8.6% coupon bond? Answer to a Current Prices Zero Coupon= $558.39 7.6% = $1117.76 8.6%= $1191.36 Need answers to part d and e
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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…
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Suppose you purchase a 10-year bond with 6% annual coupons. You hold the bond for fouryears, and sell it immediately after receiving the fourth coupon. If the bond’s yield to maturitywas 5% 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?
Please show how to work this out.

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