Example: Suppose that a bond has a face value of P100,000and its maturity date is 10years from now. The coupon rate is5% payable semi-annually. Find the fair price of thisbond, assuming that the annual market rate is 4%.Given:Coupon rate r= 5%, payable semi - annuallyFace Value = 100,000Time to maturity = 10 yearsNumber of periods = 2(10) = 20Market rate = 4%The bondholder receives 20 payments of P2,500 each, andP100,000 at t = 10.Present Value of 100,000:FP =-100000= 67,556.421+ 0.0410Present Value of 20 payments of Php2500 each:Convert 4% to equivalent semi-annual rate:1+ jm0.041= (1+=)" -1 - (1+ ) - 1- 1 =m2| = 0.0404

The price of the bond is the sum of the present value of coupon payments and the sum of the present…

mple: Suppose that a bond has a face value of P100,000and its ars from now. The coupon rate is5% payable semi-annually. Find nd, assuming that the annual market rate is 4%. en: upon rate r= 5%, payable semi - annually ce Value = 100,000 e to maturity = 10 years nber of periods = 2(10) = 20 ket rate = 4% bondholder receives 20 payments of P2,500 each, and 0,000 at t- 10. ent Value of 100,000: F 100000

mple: Suppose that a bond has a face value of P100,000and its ars from now. The coupon rate is5% payable semi-annually. Find nd, assuming that the annual market rate is 4%. en: upon rate r= 5%, payable semi - annually ce Value = 100,000 e to maturity = 10 years nber of periods = 2(10) = 20 ket rate = 4% bondholder receives 20 payments of P2,500 each, and 0,000 at t- 10. ent Value of 100,000: F 100000

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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What is the price of a bond with a coupon rate of 4% making semi-annual payments with a face value of $1,000 that matures in 10 years when a. the YTM on the bond is 8.6%? B. the Y IM Is 6.6%? C. the YTM is 5.0%? d. What is the relationship between YTM and price?
Consider a bond that pays annually an 8% coupon with 20 years to maturity. The percentage change in the price of the bond if its yield to maturity increases from 5% to 7% is closest to? Set your decimal places to 4 in your financial calculator. a 19.50% b 24.22% c -24.22% d -19.50%
Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $90.44, while a 2-year zero sells at $82.64. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 12% per year. Required: a. What is the yield to maturity of the 2-year zero? b. What is the yield to maturity of the 2-year coupon bond? c. What is the forward rate for the second year? d. If the expectations hypothesis is accepted, what are (1) the expected price of the coupon bond at the end of the first year and (2) the expected holding-period return on the coupon bond over the first year? e. Will the expected rate of return be higher or lower if you accept the liquidity preference hypothesis? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E Will the expected rate of return be higher or lower if you accept the liquidity preference hypothesis?…
A 25-year coupon bond pays an annual coupon of 5 and has a face value of100. If the current price is 100, what is the yield to maturity? (b) The current (year t) price of a 5-year coupon bond is 100. It has a coupon rateof 5%, a yield to maturity of 5% and a face value of 100. In year t +1 newsarrives that short term interest rates will be twice as high for the foreseeablefuture. What is the percentage change in the price of the bond? Why did thebond’s price have to change in this way?(c) The expectations hypothesis says that the yield to maturity on an n year riskfree bond equals a constant risk premium plus the expected average of shortrates over the life of the bond. Which prediction of this theory is rejected bythe data and what amendments to the theory have been proposed in responseto this rejection?
Bond A makes semi-annual interest payments of $30. Bond B makes an annual payment of $50. All else equal, which one has the lower coupon rate? Select one: a. B b. A=B c. A
Consider a bond that is currently priced at $1100. If the face value of the bond is $1000, coupon payments are made semiannually, the bond matures in 5 years, and the YTM is 3%, what is the coupon rate? Group of answer choices 5.17% 2.58% 3.00% $25.84
You have decided to invest in Bond x, an n-year bond with semi-annual coupons and the following characteristics: Par value is 1000 The ratio of the semi - annual coupon rate to the desired semi- annual yield rate, is 1.03125. The present value of the redemption value is 381.5. Given v=0.5889, what is the price of bond x ? A) 1,055 B) 1,072 C ) 1,073 D) 1,069 E) 1,044
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Duration and price sensitivity a) Calculate the duration and modified duration of a bond with a face of $1,000, a 6% coupon rate, and a 5% YTM with 1 payment per year and a maturity of 10 years, using the Excel DURATION and MDURATION formulas. b) Calculate the following: 1. What are the approximate percentage and dollar changes in price for a 1% change in interest rates using the duration approximation formula? 2. What are the actual percentage and dollar changes in price if interest rates increase by 1%?
assume that forward rates for the next 2 years are given by: r(0.5)=6%, r(1)=7%; r(1.5)=8% and r(2)=9%. In addition, the price of a 7% coupon bond maturing 2.5 years from now is equal to $101 and the price of a 6% coupon bond maturing 3 years from now is equal to $99 a) Find the 2.5-year forward rate r(2.5). Keep at least 6 decimal digits while doing calculations and reporting the answer. b) Find the 3 year forward rate r(3). Keep at least 6 decimal digits while doing calculations and reporting the answer.
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