Investor Matt has $324,000 to invest in bonds. Bond A yields an average of 7.3% and the bond Byields 7.7%. Matt requires that at least 4 times as much money be invested in bond A as in bond B.You must invest in these bonds to maximize his return. What is the maximum return?$per year. Round to the nearest cent.

Answered: Image /qna-images/answer/dd8531e2-9684-459c-813a-0f0f213354b1.jpg

Answered: Investor Matt has $324,000 to invest in…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Suppose Anastasia has a consol bond (a perpetuity bond) that pays an annual coupon of $200 per year and yields on similar types of investments are 10%. If Anastasia expects competing yields will increase to 12%, what is her expected capital gain (positive for a gain and negative for a loss)? a. -$333.33 b. $2,884.47 C. -$1,666.67 d. $1,066.67
You have paid $120 for an 5.5% coupon bond with a face value of $1,000 that matures in five years. You plan on holding the bond for one year. If you want to earn a 5.5% rate of return on this investment, what price must you sell the bond for?
An investment firm recommends that a client invest in bonds rated AAA, A, and B. The average yield on AAA bonds is 4%, on A bonds 5%, and on B bonds 8%. The client wants to invest twice as much in AAA bonds as in B bonds. How much should be invested in each ype of bond if the total investment is $9,000, and the investor wants an annual return of $470 on the three investments? The client should invest $ in AAA bonds, $in A bonds, and $[ in B bonds.
Cardinal Mania is financing a new investment project by issuing five-year bonds. Each bond has the face value of $1,000, and each bond pays out a $25 coupon each year (annual coupon.) Cardinal Mania plans to issue 1000 such bonds to raise the required funding of $870,000. Please answer the following questions: A. Calculate the yield to maturity and the current yield of this bond. B. Your tax rate is 20%, and the bond from Cardinal Mania is not tax-exempt. Suppose you can also invest in a five-year tax-exempt municipal bond with a yield of 3%. Would you buy the Cardinal Mania bond or the municipal bond? C. What would the holding period return rate be if you hold the Cardinal Mania bond for two years before selling it at par?
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?
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…
You want to receive $5,000 per month in retirement. If you can earn 0.8% return per month and you expect to need the income for 28 years, how much do you need to have in your account at retirement? $582,032 $589,511 $596,123 $575,298 A firm has issued a bond. The bond has a 6% coupon, paid semiannually, a current maturity of 15 years, and sell for $1,273.8. The firm’s marginal tax rate is 21%. What’s the firm’s after-tax component cost of debt? 3.62% 2.86% 6.00% 12%
You are 19 years old today. You want to have $381,507.06 in an investment account when you are 60 years old. You will start with an initial deposit in one year from now and grow it by 3% per year for a total of 15 investments. How much is the amount of that initial deposit? Assume an interest rate (a.k.a. return on your investment of 6%. Use the $ sign and a comma and round to the nearest thousand...(e.g. $8,000 would be the form of a correct answer). Hint....the correct answer should be very close to a multiple of $1,000.
Bill Magness wants to purchase ERCOT bonds which are maturing in 15 years and yielding 3.87%. These ERCOT bonds have an annual coupon rate of 4.59% and a par value of $5,000. If the ERCOT bonds pay coupons twice per year, how much will Bill Magness have to spend to purchase one ERCOT bond? Note: the next coupon will be paid in exactly 6 months. a. $5,514.90 b. $5,406.76 c. $5,677.10 d. $5,190.49 e. $5,028.29
Pierre Dupont just received a cash gift from his grandfather. He plans to invest in a five-year bond issued by Venice Corp. that pays an annual coupon of 4.08 percent. If the current market rate is 5.60 percent, what is the maximum amount Pierre should be willing to pay for this bond? (Round answer to 2 decimal places, e.g. 15.25.) Pierre should pay $_____________
11. Jared wants to invest money in a 6% savings account that compounds semiannually. Jared would like the account to have a balance of $110,000 2-years from now. How much must Jared deposit to accomplish his goal? 12. Pathfinder issues a bond with a coupon rate of 9%, face amount of $50,000, and is due in 5 years. Interest payments are made semi-annually. The effective rate for this type of bond is 10%. What is the issue price of the bond? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Consider a six-year, 10% coupon bond (yearly coupon payments) with a face value of $1000 that John bought for $950. (a). What is the yield to maturity of this bond? (b). Suppose after holding it for one year, (and receiving one coupon payment), John sells it for $1050. What is the return John got from holding this bond for one year?

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS