Kathleen is considering investing in bonds. She has gathered the coupon rate and yield-to-maturity for 4 bonds:Bon Couponds RateA4%B5%5%3%CDYield-to-Maturity5%2%4%6%Assume the par value for all of these bonds is $1,000. Which of these bonds will have a price of more than$1,000? (Select all that apply)A. Bond AOB. Bond BO C. Bond CO D. Bond D

Bonds are debt instruments that are issued by corporate entities and governments to raise funds to…

Kathleen is considering investing in bonds. She has gathered the coupon rate and yield-to-maturity for 4 bonds: Bon Coupon ds Rate A 4% B 5% C 5% D 3% Yield-to- Maturity 5% 2% 4% 6% Assume the par value for all of these bonds is $1,000. Which of these bonds will have a price of more than $1,000? (Select all that apply) A. Bond A B. Bond B O C. Bond C O D. Bond D

Kathleen is considering investing in bonds. She has gathered the coupon rate and yield-to-maturity for 4 bonds: Bon Coupon ds Rate A 4% B 5% C 5% D 3% Yield-to- Maturity 5% 2% 4% 6% Assume the par value for all of these bonds is $1,000. Which of these bonds will have a price of more than $1,000? (Select all that apply) A. Bond A B. Bond B O C. Bond C O D. Bond D

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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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.
Leah is considering repositioning some of the investments in her bond portfolio. Of the bonds shown below which one has the longest duration and is therefore most sensitive to interest rate changes. Assume that they are all purchased this year and current interest rates are 6.2% Bond A: 6.25% coupon Treasury bond with a current price $1,050 that matures in 2030 Bond B: Zero coupon Treasury bond with a current price $789 that matures in 2030 Bond C: 4.01% AA corporate debenture with a current price $949 that matures in 2030 Bond A Bond B Bond C O They all have the same duration
Could you also include the formula that you use when working out the calculation, for example part A asks the new bond value, could you include a formula to show how this is calculated Consider a bank with the following balance sheet (M means million): Assets Value Duration of the Asset Convexity of the Asset 5yr bond bought at a yield of 3.4% (lending money) $550M 4.562 12.026 12yr bond bought at a yield of 4% (lending money) $800M 9.453 53.565 Liabilities Value Duration of the Liability Convexity of the Liability 2yr bond sold at a yield of 2.4% (borrowing money) $300M 1.941 2.384 4yr bond sold at a yield of 2.8% (borrowing money) $500M 3.759 8.206 Required a) If the interest rates go up by 1%, using the duration and convexity rule to determine the net worth of the bank and the equity to asset ratio; (Hint: equity to asset ratio = total equity/total asset) b) In a)’s scenario, to maintain the equity to asset…
Suppose that a bond has an 8% coupon, a 6% YTM, and a 4% YTC and is callable in 3 years. For this bond issue, investors would expect the bonds A. Not to be called and earn the YTM B. Not to be called and earn the YTC C. To be called and earn the YTM D. To be called and earn the YTC
Consider two types of bonds: A 10 year to maturity corporate bond and a 10 year to maturity Treasury bond. We know that Corporate Bonds have default risk. Discuss the impact on the markets for these two type of bonds & on the risk premium when there is a FALL in the risk of corporate default? Provide a DISCUSSION of the impact and ILLUSTRATE the impact graphically using two diagrams, one for corporate bonds and one for Treasuries. The diagrams should show the impact on each yield and the impact on the risk premium [label your diagram clearly to illustrate the old premium vs. the new premium]. hint: draw your diagrams side by side, so you can show the risk premiums as done in lecture.
4. Using Excel or your favorite software: (a) A 5-year Treasury newly issued on February 15, 2021 would have a coupon equal to the 5-year par coupon and would have been priced at par. Confirm that your par coupon results in a par price for this bond. (b) Calculate the 6-month forward rates for all the cash-flow dates of your 5-year bond. Confirm that a 5-year floating rate bond with coupons equal to the forward rates prices at par. (c) Consider the case where the Federal Reserve increases rates in a way that results in an increase of all forward rates by 200 basis points: i. Recalculate the price of the fixed-rate bond using the par coupon you calcu- lated in part 4(a) above. Note that the discount factors will have changed because of the parallel shift in the forward curve. Briefly explain the price change or lack thereof. ii. Recalculate the price of the 5-year floating-rate bond. Briefly explain the price change or lack thereof. (d) A security known as an interest-rate swap can be…
You own a bond with a face value of $1,000 and a conversion ratio of 350. What is the conversion price? The conversion price for this bond is $ (Round to the nearest cent.)
Subject:- finance
Assume that you have two bond investments and the information follows: Bond A has a par value of $8,000, interest paid semi annual, maturity 2 years, stated interest rate is 6%. Bond B has a par value of $8,000, interest paid semi annual, maturity 10 years, stated interest rate is 6%. The interest rates are increasing to 7%. Assume that you can only sell one of the bonds, which bond will you sell before the interest rate changes to 7%? Explain and support your answer with a present value calculation.
The Chief Financial Officer of a company would like to raise money for new equipment by floating a new bond issue. The CFO would like to receive $1000 (full face value) for each of the bonds she sells. After collecting the below bond market data, and if the bonds carry a rating of A and have a term of 10 years, what coupon rate should be included in the bond contract? Assume an annual coupon payment. Security& Rating Maturity Face Coupon Price Treasury 1 $ 1,000 0.00% $ 965.00 Treasury 3 $ 1,000 1.90% $ 939.06 Treasury 5 $ 1,000 4.30% $ 932.42 Treasury 10 $ 1,000 6.80% $ 1,007.12 Treasury 15 $ 1,000 6.60% $ 908.25 CorpA A 5 $ 1,000 8.10% $ 990.00 CorpB BB 10 $ 1,000 7.90% $ 859.88 CorpC AA 15 $ 1,000 7.00% $ 660.00

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