Bond X is noncallable and has 20 years to maturity, an 8% annual coupon, and a $1,000 par value. Your required return on Bond X is 7%; if youbuy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5 years, the yield to maturity on a 15-year bond with similarrisk will be 7.5%. How much should you be willing to pay for Bond X today? (Hint: You will need to know how much the bond will be worth at theend of 5 years.) Do not round intermediate calculations. Round your answer to the nearest cent.$

To find out how much you should be willing to pay for Bond X today, you need to calculate its…

Answered: Bond X is noncallable and has 20 years…

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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Similar questions

You plan to buy an 8% coupon 8-year maturity bond when market rate of return of similar bond is 10%. a) Calculate the proper price for this bond. b) TWO years later, the market rate has changed to 9% and the price of your bond has also changed accordingly. If you sell this bond at the market price, what is the ANNUAL rate of return from your investment in this bond? c) What will be your real rate of return over the two years if inflation rate is 3% in the first year and 5% in the second?
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:
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 worth at the end of 5 years.) Do not round Intermediate calculations. Round your answer to the nearest cent. $
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?
You buy a zero-coupon bond with a face value of $16,000 that matures in 10 years for $7,000. What is your annual compound rate of return?
You are considering the purchase of a coupon bond with a face value of $1,000, which matures in 14 years, and pays 4.15% (annual) coupons. If you require a return of 3.50% on this instrument, how much would you offer to pay for it today? [Present the answer rounded to two decimal places, e.g. 1035.16]
You own a 5% bond maturing in two years and priced at 87%. Suppose that there is a 10% chance that at maturity the bond will default and you will receive only 40% of the promised payment. a,What is the bond's promised yield to maturity? b,What is its expected yield? Assume annual coupon payments
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)
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.)

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