Imagine a market where two bonds are traded. Both have a face value of $1,000 and a singleannual payment. The first bond is a 5% bullet bond maturing in one year and is tradedat $1,034.48. The second bond is a 4% bullet bond maturing in two years and is traded at$1,019.71. Assume that fractions of bonds can be traded.a. Using these bonds, show how you can construct a zero - coupon bond with face value$1,000 maturing in one year and a zero - coupon bond with face value $1,000 maturingin two years.

To construct zero-coupon bonds using the given coupon bonds, we'll use a concept known as bond…

Answered: Imagine a market where two bonds are…

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

See similar textbooks

Similar questions

What are the steps and explanation for determining the current value of BondB that matures in 2 years and it has the same interest rate (yield) as Bond A. BondA matures in 1 year, has a current price (PV) of $800 and a face value (FV) of $1000.
Show me the steps with explanations to calculate the bond's time to maturity given the a discount bound is bought at a current price of $1000 and it promises to pay $1340 with an interest rate (yield) of 5%.
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
Assume that a corporate bond has a par value of $1,000 and pays coupon payments semiannually. What is the semiannual coupon payment for this bond if the coupon rate is 6.66%? (Round your final answer to two decimal places.)
Using semiannual compounding, find the prices of the following bonds: a. A 9.8%, 15-year bond priced to yield 7.7%. b. A 7.3%, 10-year bond priced to yield 9.4%. c. A 11.6%, 20-year bond priced at 9.5%. Repeat the problem using annual compounding. Then comment on the differences you found in the prices of the bonds. a1. Using semiannual compounding, the price of the bond is $nothing. (Round to the nearest cent.)
A bond has a coupon rate of 9% term fo maturity of 5 years and par value of RM 1000. The coupon is paid once a year and the market interest rate is 8%. a. Compute the Macaulay duration for this bond b. Compute the modified duration for this bond c. Explain the advantages of bonds to the issuing firms and also investors
Bond X is a premium bond making semiannual payments. The bond has a coupon rate of 9 percent, a YTM of 7 percent, and 15 years to maturity. Bond Y is a discount bond making semiannual payments. This bond has a coupon rate of 7 percent, a YTM of 9 percent, and also has 15 years to maturity. Both bonds have a par value of $1,000. a. What is the price of each bond today? b. If interest rates remain unchanged, what do you expect the price of these bonds to be 1 year from now? In 6 years? In 10 years? In 14 years? In 15 years? Note: For all requirements, do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. a. Price today b. Price in 1 year Price in 6 years Price in 10 years Price in 14 years Price in 15 years Bond X Bond Y
Excel Activity: Bond Valuation Clifford Clark is a recent retiree who is interested in investing some of his savings in corporate bonds. His financial planner has suggested the following bonds: • Bond A has a 10% annual coupon, matures in 12 years, and has a $1,000 face value. • Bond B has an 8% annual coupon, matures in 12 years, and has a $1,000 face value. • Bond C has a 12% annual coupon, matures in 12 years, and has a $1,000 face value. Each bond has a yield to maturity of 10%.
You want to determine the value of your company bond that you have held. The market has not traded your security in a long time but still makes payments semiannually 6.2% coupon and 7 years. You find two similar bonds with characteristics as follows. Bond X: 4-year 6% coupon priced at 950 Bond Y: 6-year 5% coupon priced at 980, 1000 bond value a. What is the approximate price of your bond? b. How does your bond compare to the other two bonds?
ELECTRON Computers just issued a bond that matures in 8 years. Its par value is equal to $1,000 and its coupon rate is equal to 7.5%. Interest payments are made annually. The yield to maturity on the bond is 7%. a. This type of bond is called: OYield bond OCoupon bond ODiscount bond b. Calculate the value of the coupon payment. Coupon payment = $ c. Calculate the value of the bond today. Use two decimal places and report a positive number. VB = $
Suppose you are a bond dealer looking for arbitrage opportunities. The first column in the table below shows the current prices of the four government bonds (without default risk). Assume that you can buy and short these bonds at a given price. The remaining columns of the table are the cash flows generated by the bonds at the end of the first, second and third years. All bonds mature at the end of the third year. Are there arbitrage opportunities for the prices of these four types of bonds? If it exists, how can you seize this opportunity?
Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 7 percent, has a YTM of 5 percent, and has 13 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays a coupon rate of 5 percent, has a YTM of 7 percent, and also has 13 years to maturity. The bonds have a $1,000 par value. What is the price of each bond today? If interest rates remain unchanged, what do you expect the price of these bonds to be one year from now? In four years? In nine years? In 11 years? In 13 years?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

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

SEE MORE TEXTBOOKS