Joe must pay labilities of 1,000 due six months from now and another 1,000 due one year from now. There are two available investments 1. a 6-month bond with face amount of 1.000, a 10% nominal annual coupon rate convertible semiannually, and a 4 nominal annual yield rate convertible semiannually:and 2. a one-year bond with face amount of 1,000, a 5 nominal annual coupon rate convertible semiannually, and a 6 nominal annual yield rate convertible semiannually. What is Joe's total cost of purchasing the bonds required to exactly (absolutely) match the liablities? OA 1922.76 O B. 2159.83 OC2.385.36 O D. 2.774.91 OE3.092.74

Joe must pay labilities of 1,000 due six months from now and another 1,000 due one year from now. There are two available investments 1. a 6-month bond with face amount of 1.000, a 10% nominal annual coupon rate convertible semiannually, and a 4 nominal annual yield rate convertible semiannually:and 2. a one-year bond with face amount of 1,000, a 5 nominal annual coupon rate convertible semiannually, and a 6 nominal annual yield rate convertible semiannually. What is Joe's total cost of purchasing the bonds required to exactly (absolutely) match the liablities? OA 1922.76 O B. 2159.83 OC2.385.36 O D. 2.774.91 OE3.092.74

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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A callable bond has face value £100, coupon rate 10% paid semi-annually and maturity 15 years. The bond can be redeemed at any time after year 4 at call price £124. If the interest rate after year 4 is 7%, explain whether the issuer will exercise the call option to redeem the bond
Two 20-year maturity mortgage-backed bonds are issued. The first bond has a par value of $10,000 and promises to pay a 10.5 percent annual coupon, while the second is a zero coupon bond that promises to pay $10,000 (par) after 20 years, with interest accruing at 10.0 percent. At issue, bond market investors require a 12.0 percent interest rate on both bonds. Required: a. What is the initial price on each bond? Bond 1: ? bond 2: 1033.32 b. Now assume that both bonds promise interest at 10.5 percent, compounded semiannually. What will be the initial price for each bond? c. If market interest rates fall to 9.5 percent at the end of the fifth year, what will be the value of each bond, assuming annual payments as in (a) (state both as a percentage of par value and actual dollar value)?
You buy a 6% 1,000 bond for $1,000, immediately after semiannual interest has been paid to the previous owner. Eight years later, you sell the bond for $990.50, immediately after you receive the semiannual interest check. What is your yield during ownership?
Two 20-year maturity mortgage-backed bonds are issued. The first bond has a par value of $10,000 and promises to pay a 9.5 percent annual coupon, while the second is a zero coupon bond that promises to pay $10,000 (par) after 20 years, with interest accruing at 9.0 percent. At issue, bond market investors require a 11.0 percent interest rate on both bonds. Required: a. What is the initial price on each bond? b. Now assume that both bonds promise interest at 9.5 percent, compounded semiannually. What will be the initial price for each bond? c. If market interest rates fall to 8.5 percent at the end of the fifth year, what will be the value of each bond, assuming annual payments as in (a) (state both as a percentage of par value and actual dollar value)?
Toby purchased a 15-year par value bond with semiannual coupons of 3.5 and a redemption value of 110. The bond can be called at 120 on any coupon date prior to maturity, starting at the end of year 10. Calculate the maximum price of the bond to guarantee that Toby will earn an annual nominal interest rate of at least 8% convertible semiannually. O a. 102 O b. 99 O c. 97 d. 105 O e. 94
There are two options of investments given to an investor. Option A is a bond with face value of P100,000, 6% interest rate while the yield to maturity rate is 8%. Option B is a bond with a face value of P80,000, 14% (rounded up) interest rate while the effective rate of return is at 10%. Both investments is for 5 years and the interest income are being received annually. Which of the two investments should you choose? A. Option A B. Option B C. Either of the options D. answer not given
A $10,000, 10-year corporate bond is offered at a premium for $11,000. The bond rate is 10% 6) per year compounded quarterly. If John wishes to earn 8% per year compounded quarterly on the bond investment, should he purchase the bond assuming he keeps the bond till it matures and then redeems it at face value? Explain. Show all work.
A perpetual bond pays the owner 29,000.0O at the end of each year with the interest rate is fixed at 6.1 %. Solve for Present Value of the perpetual bond.
Ten bonds are purchased for $9,083.25 and are kept for 5 years. The bond coupon rate is 5% per year, payable annually. Immediately following the owner's receipt of the last coupon payment, the owner sells each bond for $50 less than its par value (price discount). The owner will invest in the bonds if the effective annual yield is at least 7%. What is the face value of the the ten bonds?
you intended to purchase a 10 year, $1,000 face value bond pays interestof $60 every 6 months if your norminal annual required rate of return is 10%with a semiannual compound how much should you be willing to pay for this bond?
A three-year, 1000 dollars, 6 percent bond with semiannual coupons has redemption amount 1,040 dollars. Make amortization tables for this bond if it is bought to yield a nominal rate of 4 percent convertible semiannually.
Bones Ely owns a $1,000 face-value bond with three years to maturity. The bond makes annual interest payments of$75, the first to be made one year from today. The bond is currently priced at $975.48. Given an appropriate discount rate of 10%, should Bones hold or sell the bond?

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