Bond value and time-Changing required returns Personal Finance Problem Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have $1,000 par values and 8% coupon interest rates and pay annual interest. Bond A has exactly 5 years to maturity, and bond B has 15 years to maturity. a. Calculate the present value of bond A if the required rate of return is: (1) 5%, (2) 8%, and (3) 11%. b. Calculate the present value of bond B if the required rate of return is: (1) 5%, (2) 8%, and (3) 11%. c. From your findings in parts a and b, discuss the relationship between time to maturity and changing required returns. d. If Lynn wanted to minimize interest rate risk, which bond should she purchase? Why? a. (1) The value of bond A, if the required return is 5%, is $ (Round to the nearest cent.)

Bond value and time-Changing required returns Personal Finance Problem Lynn Parsons is considering investing in either of two outstanding bonds. The bonds both have $1,000 par values and 8% coupon interest rates and pay annual interest. Bond A has exactly 5 years to maturity, and bond B has 15 years to maturity. a. Calculate the present value of bond A if the required rate of return is: (1) 5%, (2) 8%, and (3) 11%. b. Calculate the present value of bond B if the required rate of return is: (1) 5%, (2) 8%, and (3) 11%. c. From your findings in parts a and b, discuss the relationship between time to maturity and changing required returns. d. If Lynn wanted to minimize interest rate risk, which bond should she purchase? Why? a. (1) The value of bond A, if the required return is 5%, 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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Economics Corus Berhad is interested to invest in bonds. Currently, the financial manager is evaluating both Bond A and Bond B. Bond A pays 8 percent coupon semi-annually and matures in 12 years. Bond B pays 7 percent coupon annually having a maturity period of 13 years. Determine the value of each bond if the current market yield for both bonds is 8 percent.
A plot of the yields on bonds with different terms to maturity but the same risk, liquidity, and tax considerations is known as O A. a yield curve. B. a risk-structure curve. OC. a term-structure curve. 5- O D. an interest-rate curve. Suppose people expect the interest rate on one-year bonds for each of the next four years to be 3%, 6%, 5%, and 6%. If the expectations theory of the term structure of interest rates is correct, then the implied interest rate on bonds with a maturity of four years is nearest whole number). %. (Round your response to the 2- Refer to the figure on your right. Suppose the expected interest rates on one-year bonds for each of the next four years are 4%, 5%, 6%, and 7%, respectively. 1. 1.) Use the line drawing tool (once) to plot the yield curve generated. 3 Term to Maturity in Years 2.) Use the point drawing tool to locate the interest rates on the next four years. 5. 3- Interest Rate .....
State one short term and one long term financial goals of yours. Assume, you have purchased a bond with $200 discount, and it has 5 years maturity with 6% coupon. If the face value of the bond is $2500, calculate YTM.
Give typing answer with explanation and conclusion
Exploring Finance: Coupon Bonds. Coupon Bonds Conceptual Overview: Explore the value of fixed-interest coupon bonds of different terms. This graph shows the value of 10% coupon bonds of different terms across differing market interest rates. Each bond pays INT = $100 at the end of each year and returns M = $1,000 at maturity. For comparison, the blue line depicts the value of a one-year bond. The term of the other bond in years may be changed using the slider. Drag on the graph to change the current market interest rate (rd) at which the bond (orange curve) is evaluated. 5. For a 10%, $1,000 coupon bond, a longer term bond (say, 15 years) is: less affected by changes in the market rate than a 1-year bond. affected the same by changes in the market rate than a 1-year bond. more affected by changes in the market rate than a 1-year bond. Cannot be determined.
Typing answer A couple purchased a bond for $950.00 three years ago. The bond pays 7.75% APR with semi-annual coupons with a face value of $1,000. Currently, the bond has exactly 10 years until maturity, and investors seek a return of 12.00% APR on bonds of similar risk. What is the current price of the bond?
You are considering two bonds, AMD and BBS. Both bonds are selling at par and pay the same amount of interest of $120 annually. Bond AMD will mature in 5 years while bond BBS will mature in 6 years. If the YTM on these two bonds increases by 1%, what do you expect to happen to their bond prices? • A. Both bond prices will increase, but BBS will increase more than AMD. • B. Both bond prices will decrease, but BBS will decrease more than AMD. • C. Both bond prices will increaks, but AMD will increase more than BBS. D. Both bond prices will decrease, but AMD will decrease more than BBS. You observe the current yield curve as follows: r0.5=4%, r1=4.2%, r1.5=4.3%, and Г2=4.1%. What is the price of a T-note which has a coupon rate of 4%, 2 years to maturity, and $1,000 par? • A. $1,064.69 • B. $998.03 • C. $992.52 • D. $988.87 The interest rates on 3- and 2-year Treasuries are 2.35% and 2.20%, respectively. If you estimate that the 1-year expected spot rate in year 3 is 2.53%, what is…
Please use a financial calculator for accurate answers You currently own a bond with the following characteristics: Years to Maturity: 9 Face Value: $1,000 Coupon Rate: 8%/annum Market Return: 6%/annum Pays coupon semi-annually Calculate the present value of the bond: Another bond in the market has the following characteristics: Years to Maturity: 6 Face Value: $980 Coupon Rate: 6%/annum Market Return: 6%/annum Pays coupon semi-annually Should you sell your existing bond to purchase the second bond? Why/ why not?
A short question 4) You are managing a portfolio of $1 million. Your target duration is 10 years, and you can choose from two bonds: a zero-coupon bond with maturity of 5 years, and a perpetuity*, each currently yielding 5%. a. How much of each bond will you hold in your portfolio? b. How will these ratios change next year if target duration is now 9 years? *: Perpetuity: a specal case of annuity, where n-> Inf, thus the maturity of the instrument is perpetual.
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
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