Last month Jim purchased $10,000 of U.S. Treasury bonds (their face value was $10,000). These bonds have a 30-year maturity period, and they pay 1.5% interest every three months (i.e., the APR is 6%, and Jim receives a check for $150 every three months). But interest rates for similar securities have since risen to a 7% APR because of interest rate increases by the Federal Reserve Board. In view of the interest-rate increase to 7%, what is the current value of Jim's bonds?

Last month Jim purchased $10,000 of U.S. Treasury bonds (their face value was $10,000). These bonds have a 30-year maturity period, and they pay 1.5% interest every three months (i.e., the APR is 6%, and Jim receives a check for $150 every three months). But interest rates for similar securities have since risen to a 7% APR because of interest rate increases by the Federal Reserve Board. In view of the interest-rate increase to 7%, what is the current value of Jim's bonds?

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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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.
Darnell receives a portion of his income from his holdings of interest-bearing U.S. government bonds. The bonds offer a real interest rate of 4% per year. The nominal interest rate on the bonds adjusts automatically to account for the inflation rate. The government taxes nominal interest income at a rate of 20%. The following table shows two scenarios: a low-inflation scenario and a high-inflation scenario. Given the real interest rate of 4% per year, find the nominal interest rate on Darnell's bonds, the after-tax nominal interest rate, and the after-tax real interest rate under each inflation scenario. Inflation Rate Real Interest Rate Nominal Interest Rate After-Tax Nominal Interest Rate After-Tax Real Interest Rate (Percent) (Percent) (Percent) (Percent) (Percent) 2.5 4.0 8.5 4.0 Compared with higher inflation rates, a lower inflation rate will the after-tax real interest rate when the government taxes…
Allen Roofing Materials has 6 percent bonds outstanding that are currently priced at $1,001 each. The bonds pay interest on December 1 and June 1. What is the dirty price of this bond if today's date is April 1? Assume a 360-day year.
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On January 1st 2014, Roshan bought a 20-year treasury bond with a face value of $1000 and a coupon rate of 2.7% for $998.20. A year later she sold the bond at a price of $1003.70. Which of the following is correct? In 2015, the long-term interest rate went up but is below 2.7%. In 2015, the long-term interest rate went down but is above 2.7%. In 2015, the long-term interest rate went up and is above 2.7%. In 2015, the long-term interest rate went down and is below 2.7%.
Prepare a schedule for the following bond, including calculations, yearly income, end-of-year accumulations, and net of tax: You purchase a one-year municipal bond for $150,000. Every year on December 30, the muni bond will mature and pay interest, and on that date, you will put the income, net of any taxes due, in a bank CD and utilize the principle to purchase another one-year muni-bond. The CD also has a maturity of one year, and you'll reinvest the principle and any CD income, net of any tax he owes, together with the muni revenue, in another CD, and so on. When the last muni and CD mature at the end of year three, you will keep the CD and muni amounts as of that time, net of any taxes due, to support your children's education. （you invest on Jan 1 on the first year, and cash out on December 31 on the last year). You are, and will stay, in the 40% ordinary income and 20% long-term capital gains tax rates. The muni-bond has a rate of return of 4%, whereas a CD has a rate of return…
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Please give me the detailed process Rejean purchased a 20-year 6 percent real return bond for $15 000 and the CPI has increased by 1.5 percent in the first year. What interest payment will Rejean receive in the second year?

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