Bond X is noncallable and has 20 years to maturity, an 11% annual coupon, and a $1,000 par value. Your required return on Bond X is 10%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 10.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to know how much the bond will be worth at the end of 5 years.) Do not round Intermediate calculations. Round your answer to the nearest cent. $

Bond X is noncallable and has 20 years to maturity, an 11% annual coupon, and a $1,000 par value. Your required return on Bond X is 10%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 10.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to know how much the bond will be worth at the end of 5 years.) Do not round Intermediate calculations. Round your answer 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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Bond X is noncallable and has 20 years maturity, a 9% annual ciupon, and a $1,000 par value. Your required return on bond X is 10% and if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15— year bond with similar risk will be 8.5%. How much should you be willing to pay for Bond X today? Please show formula and computation, not in spreadsheet
How much would you pay for a zero coupon bond with a par value of $1000, a maturity of 21 years, if your required rate of return is 6.1%? Assume annual discounting. (Round your answer to the nearest penny.)
What is the most we should pay for a bond with a par value of $1000, coupon rate of 5.0% paid semi - annually, and a remaining life of 10 years? The bond is rated BBB, with a yield to maturity of 9.1%. (Round your answer to the nearest penny.) Answer:
Suppose you purchase a 10-year bond with 6.3% 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 4.6% 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 annual rate of return of your investment?
Assume that you are considering the purchase of a 30-year, noncallable bond with an annual coupon rate of 9.0%. The bond has a face value of $1,000, and it makes semiannual interest payments. If you require an 9.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?
Assume that you are considering the purchase of a 25-year, noncallable bond with an annual coupon rate of 9.0%. The bond has a face value of $1,000, and it makes semiannual interest payments. If you require a 10.8% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?
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…
Bond X is noncallable and has 20 years to maturity, an 8% annual coupon, and a $1,000 par value. Your required return on Bond X is 7%; if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similar risk will be 7.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to know how much the bond will be worth at the end of 5 years.) Do not round intermediate calculations. Round your answer to the nearest cent. $
How much would you pay for a perpetual bond that pays an annual coupon of $200 per year and yields on competing instruments are 10%? You would pay $ 2000. (Round your response to the nearest penny) If competing yields are expected to change to 12%, what is the current yield on this same bond assuming that you paid $2,000? The current yield is 10%. (Round your response to the nearest integer.) If you sell this bond in exactly one year, having paid $2,000, and received exactly one coupon payment, what is your total return if competing yields are 12%? Your total return is %. (Round your response to two decimal places)
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?
What is the most we should pay for a bond with a par value of $1000, coupon rate of 4.2% paid annually, and a remaining life of 13 years? The yield to maturity is 4.2%. Assume annual discounting. (Round your answer to the nearest penny.)
Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $89.75, while a 2-year zero sells at $79.88. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 10% per year. Required: What is the yield to maturity of the 2-year zero? What is the yield to maturity of the 2-year coupon bond? What is the forward rate for the second year? If the expectations hypothesis is accepted, what are (1) the expected price of the coupon bond at the end of the first year and (2) the expected holding-period return on the coupon bond over the first year? Will the expected rate of return be higher or lower if you accept the liquidity preference hypothesis?

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