Isabel prefers to purchase bonds that contain a sinking fund provision to protect her from any potential loss of her invested capital. She purchased a 20-year, $20,000 sinking fund bond with a 12% coupon, paid semi-annually, for $18,900. If the company calls the bond after 10 years, and the call penalty requires a payment of $30 per $1,000 of face value, what are the nominal and effective yields to call on this bond? Oa) 12.77% and 13.18%, respectively Ob) 12.81% and 13.22%, respectively Oc) 13.01% and 13.43% respectivel

Isabel prefers to purchase bonds that contain a sinking fund provision to protect her from any potential loss of her invested capital. She purchased a 20-year, $20,000 sinking fund bond with a 12% coupon, paid semi-annually, for $18,900. If the company calls the bond after 10 years, and the call penalty requires a payment of $30 per $1,000 of face value, what are the nominal and effective yields to call on this bond? Oa) 12.77% and 13.18%, respectively Ob) 12.81% and 13.22%, respectively Oc) 13.01% and 13.43% respectivel

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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Isabel prefers to purchase bonds that contain a sinking fund provision to protect her from any potential loss of her invested capital. She purchased a 20-year, $20,000 sinking fund bond with a 12% coupon, paid seml-annually, for $18,900. If the company calls the bond after 10 years, and the call penaity requires a payment of $30 per $1,000 of face value, what are the yeilds to maturity and yeild to call on this bond? -previous answered questions were wrong, show calculations.
Scofield purchased a bond, costing 890, three years ago, with a current price of 925. This bond paid 100 year as interest payments (end of each year). She wants to hold the bond for 4 more years and it is expected to be sold at the end of year four at 960. It is also expected that there will be no default of yearly interest payments. Assuming that the required rate of return is 11.25%. Compute the price of the bond.
If the owners choose to invest in bonds instead, they look at a $136,125.00 bond set to mature in 9 years with a bond rate of 2.00%, payable semi-annually. The market rate is 5.40%, compounded semi-annually. The owners will only purchase the bond if they can afford it with their savings ($123,750.00), and they can get the bond at a discount because they think the market rate will go down, potentially making the bond more valuable in the future. 2. Calculate the purchase price of the bond if it is purchased today (9 years before maturity). 3. Do the owners have enough money to buy their bond? Will they make the purchase?
Eren purchased a bond, costing 890, three years ago, with a current price of 925. This bond paid 100 year as interest payments ( end of each year). She wants to hold the bond for 4 more years and it is expected to be sold at the end of year four at 960. It is also expected that there will be no default of yearly interest payments. Assuming that the required rate of return is 11.25%. Compute the price of the bond?
If the owners choose to invest in bonds instead, they look at a $57,750.00 bond set to mature in 6 years with a bond rate of 2.4%, payable semi-annually. The market rate is 4.5%, compounded semi-annually. The owners will only purchase the bond if they can afford it with their savings $52500.00, and they can get the bond at a discount because they think the market rate will go down, potentially making the bond more valuable in the future. 8. If the bond rate is {2.4%}, will the bond be sold at a premium or a discount? Explain your answer. 9. Calculate the purchase price of the bond if it is purchased today (6 years before maturity). 10. Do the owners have enough money to buy their bond? Will they make the purchase?
Stacy purchases a $60,000 bond for $57,500. The coupon rate is 6% per year payable quarterly. The bond has a 15 year life, at which time it is cased in for face value. The bank's interest is 4.8% per year compounded monthly. Stacy decides to sell the bond at the end of 8 years. What is the bond value at this time? work in terms of excel
Albert purchased a bond with exactly 20 years to redemption. The bond pays annual coupons, in arrears, of 5% per annum and is redeemed at par. Albert, who is not liable to pay tax, will obtain a gross redemption yield of 6% per annum if he holds the bond utill redemption. (a) Calculate the purchase price Albert paid for the bond, per $100 nominal if his intention was to hold the bond utill redemption. (b) After exactly ten years, immediately after receiving payment of the coupon then due, Albert sells the bond to Vicky who is liable to pay income tax and capital gains tax at a rate of 30%. The bond is purchased by Vicky to provide a net rate of return of 6.5% per annum. (i) Calculate the price Vicky paid for the bond, per $100 nominal. (ii) Using trial-and-error followed by linear interpolation, calculate the annual effective rate of return, correct to 4 decimal places, earned by Albert during the period for which he held the bond.
Zilu owns a bond that will pay her $25 in interest each year plus a $1,000 principal payment at maturity. The $1,000 principal payment is called the Multiple Choice F.coupon. A. par value. b. discount. C.yield. D.call premium. E.None of the options are correct.
Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 5.40%. Assuming that both investments have equal risk and Eric’s investment time horizon is flexible, which of the following investment options will exhibit the lower price? An investment that matures in seven years An investment that matures in six years
In 5 years Sonia requires $100,000 to fund the down payment on a cottage. Sonia is very risk adverse. Which of the following bonds should she buy? O a) None of these answers A five year BBB credit rated 8% semi-annual coupon bond maturing in b) 5 years trading at 104. c) A five year BBB credit rated strip coupon bond (i.e., zero-coupon bond) maturing in 5 years. A five year Government of Canada 8% semi-annual coupon bond d) maturing in 5 years trading at 104. A five year Government of Canada strip coupon bond (i.e., zero-coupon e) bond) maturing in 5 years.
Kendra buys a 7 year, $100,000.00 face value, 4.250% coupon bond. The bond is priced to yield r(365) = 2.000%, and is secured by a sinking fund (set up by the issuer with quarterly deposits), that earns 5.750% compounded weekly. On default, Kendra claims the balance in the sinking fund. How much does she lose if the issuer defaults after 6 years (just after making their coupon payment, and sinking fund deposit).
Linda wanted to invest in a bond issued by JoJo Ltd. The bond has $1,000 par value, matures in ten (8) years and has a coupon rate of 8.5%, with coupon paid semi-annually. What is the maximum price Linda should pay for the bond if her alternative is to invest in her friend's company who will guarantee a 10% pa return, compound semi-annually?

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