Consider a bond that promises the following cash ows. The required discount rate is 12%. Year 0 1 2 3 4 Promised Payments 160 170 180 230 You plan to buy this bond, hold it for 2.5 years, and then sell the bond. a.What total cash will you receive from the bond after the 2.5 years? Assume that periodic cash ows are reinvested at 12%. b.Assuming all market interest rates are 12%, what is the duration of this bond?
Consider a bond that promises the following cash ows. The required discount rate is 12%. Year 0 1 2 3 4 Promised Payments 160 170 180 230 You plan to buy this bond, hold it for 2.5 years, and then sell the bond. a.What total cash will you receive from the bond after the 2.5 years? Assume that periodic cash ows are reinvested at 12%. b.Assuming all market interest rates are 12%, what is the duration of this bond?
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
Related questions
Question
Consider a bond that promises the following cash ows. The required discount rate is 12%.
Year |
0 1 2 |
3 4 |
Promised Payments |
160 170 |
180 230 |
You plan to buy this bond, hold it for 2.5 years, and then sell the bond.
a.What total cash will you receive from the bond after the 2.5 years? Assume that periodic cash ows are reinvested at 12%.
b.Assuming all market interest rates are 12%, what is the duration of this bond?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education