BSuppose that a portfolio manager purchases $10 million of par value of an eight-year bondthat has a coupon rate of 7% and pays interest once per year. The first annual couponpayment will be made one year from now. How much will the portfolio manager have if she(1) holds the bond until it matures eight years from now, and (2) can reinvest all the annualinterest payments at an annual interest rate of 6.2%?A) $26,978,160.38B) 36,978,160.38C) $16,978,160.38D) -$36,978,160.38OAос

Calculate the total coupon payments: Annual coupon payment:=$1,000,000×7%=$70,000.00 Total coupon…

Answered: B Suppose that a portfolio manager…

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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Consider a zero coupon bond that promises to pay $100 each year for the next three years. Suppose we observe the set of zero coupon bond prices and its yields as below a) What is the price of this zero coupon bond? What is its yield to maturity? b) If the observe yield on two-year zero coupon bonds falls to 6% per year, but the other rates remain unchanged. What is your estimation of the value of the three-year annuity paying $100 per year? What is its yield to maturity?
Suppose you bought a 7 percent annual coupon, a 20-year bond last year when it was first issued. You paid 1,000 for a 1,000 face value bond. The yield-to-maturity of your bond was therefore 7%. If interest rates suddenly rise to 15 percent this year, and hence your bond now has to deliver a 15% yield to maturity. What is your one-year rate of return if you sell the bond this year? O-49.58% -8% +49.58% +8% -42.59%
Suppose you are interested in buying a 1.5% semi-annual coupon treasury bond maturing in exactly 10 years. You think appropriate discount rate for this bond (aka yield to maturity or YTM) is 3%. How much should you pay for this bond if its par value is $1,000?
An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond Y matures in 19 years, while Bond A matures in 1 year. 1. What will the value of the Bond Ybe if the going interest rate is 7%, 8%, and 12%? Assume that only one more interest payment is to be made on Bond A at its maturity and that 19 more payments are to be made on Bond Y. Round your answers 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.)
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.
Bond X has 20 years to maturity, a 8% annual coupon, and a R 1,000 face value. The required rate of return is 12%. Suppose you want to buy the bond and you plan to hold the bond for 6 years. You expect that in 6 years, the yield to maturity on a 15-year bond with similar risk will be priced to yield 8.5%. How much would you like to pay for the bond today?
Help me please
You have paid $120 for an 5.5% coupon bond with a face value of $1,000 that matures in five years. You plan on holding the bond for one year. If you want to earn a 5.5% rate of return on this investment, what price must you sell the bond for?
A trader, Peter, buys a treasury note with a face value of 1000, which will mature in 180 days. Currently such T-notes are yielding 4.25% per annum. a) what amount will peter pay for the T-note? b) What is the annual rate of return (HPY) for peter? c) what is the current yield of maturity (YTM) for the security?
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%
An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 12% annual coupon. Bond L matures in 15 years, while Bond S matures in 1 year. a. What will the value of the Bond L be if the going interest rate is 6%, 8%, and 13% ? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made on Bond L. Round your answers to the nearest cent. 6% Bond L $ Bond S $ $ $ -Select- 8% $ $ 13% b. Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change? I. Long-term bonds have lower reinvestment rate risk than do short-term bonds. II. The change in price due to a change in the required rate of return increases as a bond's maturity decreases. III. Long-term bonds have greater interest rate risk than do short-term bonds. IV. The change in price due to a change in the required rate of return decreases as a bond's maturity increases. V. Long-term bonds have…

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