(i)Complete the information requested for each of the following $1000 face value, zero coupon bonds assuming semi-annual compounding.BondMaturity (year)YTM (%)Price at t=0A2012?B?8601350(ii)Assume that you purchased an 8%, 20-year, $1000 par, semi-annual payment bond priced at $1012.50 with 12 years remaining till maturity. Determinea. Promised yield to maturityb. Yield to call if the bond is callable in three years with 8% premium on par value.c. What would be the price of bond 3 years from now.(iii)Bonds of Francesca Corporation with a par value of $1000 sell for $960, mature in 5 years and have a 7% annual coupon paid semi-annually. Estimatea. Current yieldb. Capital Gain Yieldc. Promised Yield to maturityd. Realized or horizon yield for an investor with a three year holding period and reinvestment rate of 6% over the holding period. At the end of three years the 7% coupon bonds with 2 year remaining till maturity will sell to yield 7%.(iv)Discuss two general investment strategies in managing bond investments. Support your answer with appropriate examples.

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Answered: (i) Complete the information requested…

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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Given the following spot rates, calculate the value of a 3-year, 6% annual-coupon bond. Spot rates: 1-year: 5% 2-year: 5% 3-year: 6% A. $1,001.56 B. $1,044.73 C. $1,094.56 D. $1,114.29 Clear my choice
Consider a bond portfolio with the following two bonds under an annual effective interest rate of 3%: 3-year zero-coupon bond with face value of $1,000 • 3-year coupon bond with face value of $1,000 and annual coupons paid at the end of each year, currently priced at par Calculate the Macaulay duration of the bond portfolio. 2.83 3.00 O 2.91 O2.02 O 3.12
9. A 4,000, 8% bond with coupons payable quarterly on January 1, April 1, July 1, October 1and will be redeemed on October 1, 1992.(Amortization of Premium)a. Find the purchase price of the bond on April 1, 1990 to yield 7% m=4.b. Construct a schedule of amortization of premium.
A. Compute the current price of each of the following bonds (assume $1,000 par value): a. 6 year, 6% quarterly bond; 12% market yield b. 20 year zero coupon bond; 6% market yield c. 10 year, 10% semiannual bond; 8% market yield
Required to show your work:Bond ABC：Coupon rate(%): 4.5% (annual payment)Current market:??Tenior:15 YearsSuppose the yield to maturity of bond E is 3.7% and face value equals to $1,000,calculate the current market price of bond ABC.
Calculate the purchase price of the following bonds. Indicate whether the bonds are priced at a discount, at par or at a premium. Give your answers in dollars and cents to the nearest cent. Face Value Coupon Rate Years to Maturity Market Rate a) $100 r = 6.75% 5 j2 = 6.75% b) $1,000 r = 8% 11 j2 = 6.25% c) $10,000 r = 7% 20 j2 = 8.75% Quoted coupon rates and market rates are nominal annual rates compounded semi-annually. a)Price = $ This bond is priced at:a discountpara premium b)Price = $ This bond is priced at:a discountpara premium c)Price = $ This bond is priced at:a discountpara premium
The Sisyphean Company has a bond outstanding with a face value of $1,000 that reaches maturity in 15 years. The bond certificate indicates that the stated coupon rate for this bond is 9.5% and that the coupon payments are to be made semannually.Assuming the appropriate YTM on the Sisyphean bond is 7.4%, then this bond will trede at A a premium. B. par c. a discount. D. none of the above
Construct a bond schedule showing the accumulation of discount on a 6,000 4% bond with quarterly coupon, redeemable at 102 at the end of 2 years and 3 months and priced to yield 5 ½% m=4. (Accumulation of Discount)
Consider the following two-bond portfolio of option-free bonds; Bond A Bond B Years to maturity 5 years 10 years Coupon rate 5% 5% Par value 1000 1000 Yield to maturity 8% 6% Par amount owned R3,45 million R2 million Market value R30 367.59 (in 000’s) R18 528 (in 000’s) Assuming that Bond A is an option-free bond, calculate the bond’s modified duration using Macauly’s Duration.
Consider a 9-year, $1,000 par value, 12% annual-pay bond that is currently trading at a flat price of $888. The capital gains yield (CGY) is closest to A. 0.7745%. B. 0.4672%. C. 0.3505%. D. 0.0185%.
A) BOND VALUATION: DeBond Industries has outstanding a $1,000 face-value bond with an8% coupon interest rate. The bond has 12 years remaining to its maturity date.a) If interest is paid annually, find the value of the bond when the required return is (1) 7%, (2)8%, and (3) 10%.b) Indicate for each case in part a whether the bond is selling at a discount, at a premium, or at itspar value.c) Using the 10% required return, find the bond’s value when interest is paid semiannually.B) AMORTIZATION: Suppose you borrow $1,200,000. You are going to repay the loan bymaking equal annual payments for five years. The interest rate on the loan is 12 percent per year.Prepare an amortization schedule for the loan. How much interest will you pay over the life of theloan? What fraction of the payment made at the end fourth year will represent repayment ofprincipal?
Given the following spot rates, calculate the value of a 3-year, 4% annual-coupon bond. Spot rates: 1-year: 1% 2-year: 3% 3-year: 9% A. $880.38 B. $914.47 C. $961.28 D. $993.88

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