MLK Bank has an asset portfolio that consists of $100 million of 30-year, 8 percent annual coupon, $1,000 bonds that sell at par. a-1. What will be the bonds' new prices if market yields change immediately by ± 0.10 percent? a-2. What will be the new prices if market yields change immediately by ± 2.00 percent? b-1. The duration of these bonds is 12.1608 years. What are the predicted bond prices in each of the four cases using the duration rule? b-2. What is the amount of error between the duration prediction and the actual market values? Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B1 Required B2 What will be the bonds' new prices if market yields change immediately by ± 0.10 percent? (Do not round intermediate calculations. Enter all answers as positive numbers. Round your answers to 2 decimal places. (e.g., 32.16)) At + 0.10% At -0.10% Bonds' New Price $ 988.85 1,011.36

MLK Bank has an asset portfolio that consists of $100 million of 30-year, 8 percent annual coupon, $1,000 bonds that sell at par. a-1. What will be the bonds' new prices if market yields change immediately by ± 0.10 percent? a-2. What will be the new prices if market yields change immediately by ± 2.00 percent? b-1. The duration of these bonds is 12.1608 years. What are the predicted bond prices in each of the four cases using the duration rule? b-2. What is the amount of error between the duration prediction and the actual market values? Complete this question by entering your answers in the tabs below. Required A1 Required A2 Required B1 Required B2 What will be the bonds' new prices if market yields change immediately by ± 0.10 percent? (Do not round intermediate calculations. Enter all answers as positive numbers. Round your answers to 2 decimal places. (e.g., 32.16)) At + 0.10% At -0.10% Bonds' New Price $ 988.85 1,011.36

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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Concept explainers

Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.

Question

6
MLK Bank has an asset portfolio that consists of $100 million of 30-year, 8 percent annual coupon, $1,000 bonds that sell at par.
a-1. What will be the bonds' new prices if market yields change immediately by ± 0.10 percent?
a-2. What will be the new prices if market yields change immediately by ± 2.00 percent?
b-1. The duration of these bonds is 12.1608 years. What are the predicted bond prices in each of the four cases using the duration rule?
b-2. What is the amount of error between the duration prediction and the actual market values?
Complete this question by entering your answers in the tabs below.
Required A1 Required A2 Required B1 Required B2
What will be the bonds' new prices if market yields change immediately by ± 0.10 percent? (Do not round intermediate
calculations. Enter all answers as positive numbers. Round your answers to 2 decimal places. (e.g., 32.16))
At + 0.10%
At - 0.10%
Bonds' New Price
$
988.85
1,011.36
< Required A1
Required A2

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A firm's bonds have a maturity of 8 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 4 years at $1,144.52, and currently sell at a price of $1,264.97. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places. YTM: % YTC: % What return should investors expect to earn on these bonds? Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.
Doisneau20-year bonds have an annual coupon interest of8 percent, make interest payments on a semiannual basis, and have a $1,000par value. If the bonds are trading with a market's required yield to maturity of18 percent, are these premium or discount bonds? Explain your answer. What is the price of the bonds?
A firm considers to invest in two zero-coupon bonds (A and B) in order to cover for a selection of its future liabilities. These zero-coupon bonds will be redeemed in 7 years' and in 20 years' time, respectively. The given selection of its liabilities consist of £11 million due in 11 years' time and £14 million due in 16 years' time. Find the value of bond B at a rate of interest of 5% per annum effective such that the first two conditions for Redington's theory of immunisation are satisfied
Taussig Corp.'s bonds currently sell for $1,220. They have a 6.35% annual coupon rate and a 20-year maturity, but they can be called in 5 years at $1,050. What rate of return should an investor expect to earn if he or she purchases these bonds?
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A bond that matures in 1212 years has a $1 comma 0001,000 par value. The annual coupon interest rate is 1414 percent and the market's required yield to maturity on a comparable-risk bond is 1515 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually?
A firm's bonds have a maturity of 12 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 6 years at $1,209.43, and currently sell at a price of $1,365.89. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places. YTM: % YTC: % What return should investors expect to earn on these bonds? I. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. II. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM. III. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. IV. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.
A firm's bonds have a maturity of 12 years with a $1,000 face value, have an 11% semiannual coupon, are callable in 6 years at $1,211.14, and currently sell at a price of $1,370.78. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places. YTM: % YTC: % What return should investors expect to earn on these bonds? Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.

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