On September 27, 2015, Koala, Inc. issued a 10 year bond (with a typical $1,000 face value) that had an annual coupon value of $65. [We are assuming that the 2021 coupon has just been redeemed.] • Initially, the bond was sold at a discount price of $978. • On September 27, 2021, this bond was selling at a premium for $1,010. • The market rate of interest for a riskless corporate bond, of this maturity (i.e., a Treasury security), was 2.8% on September 27, 2015, which reflects market expectations about future rates of inflation. • The market rate of interest for a riskless corporate bond, of this maturity (i.e., a Treasury security), was 1.9% on September 27, 2021, which reflects market expectations about future rates of inflation. 1. What was the nominal yield on this bond on September 27, 2015? [To 1 decimal place.] 2. What was the current yield on this bond on September 27, 2015? [To 3 decimal places.] 3. What was the yield to maturity for this bond on September 27, 2015? [To 2 decimal places.] 4. What was the risk premium for this bond on September 27, 2015? [To 2 decimal places.]
On September 27, 2015, Koala, Inc. issued a 10 year bond (with a typical $1,000 face value) that had an annual coupon value of $65. [We are assuming that the 2021 coupon has just been redeemed.] • Initially, the bond was sold at a discount price of $978. • On September 27, 2021, this bond was selling at a premium for $1,010. • The market rate of interest for a riskless corporate bond, of this maturity (i.e., a Treasury security), was 2.8% on September 27, 2015, which reflects market expectations about future rates of inflation. • The market rate of interest for a riskless corporate bond, of this maturity (i.e., a Treasury security), was 1.9% on September 27, 2021, which reflects market expectations about future rates of inflation. 1. What was the nominal yield on this bond on September 27, 2015? [To 1 decimal place.] 2. What was the current yield on this bond on September 27, 2015? [To 3 decimal places.] 3. What was the yield to maturity for this bond on September 27, 2015? [To 2 decimal places.] 4. What was the risk premium for this bond on September 27, 2015? [To 2 decimal places.]
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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![On September 27, 2015, Koala, Inc. issued a 10 year bond
(with a typical $1,000 face value) that had an annual
coupon value of $65. [We are assuming that the 2021
coupon has just been redeemed.]
Initially, the bond was sold at a discount price of
$978.
• On September 27, 2021, this bond was selling at a
premium for $1,010.
• The market rate of interest for a riskless corporate
bond, of this maturity (i.e., a Treasury security),
was 2.8% on September 27, 2015, which reflects
market expectations about future rates of inflation.
• The market rate of interest for a riskless corporate
bond, of this maturity (i.e., a Treasury security),
was 1.9% on September 27, 2021, which reflects
market expectations about future rates of inflation.
1. What was the nominal yield on this bond on
September 27, 2015? [To 1 decimal place.]
2. What was the current yield on this bond on September
27, 2015? [To 3 decimal places.]
3. What was the yield to maturity for this bond on
September 27, 2015? [To 2 decimal places.]
4. What was the risk premium for this bond on
September 27, 2015? [To 2 decimal places.]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb927a9bd-22f6-44ad-9c8d-23121ca33234%2Fe2f5b31e-e952-489d-a9dd-51f8e49d6ced%2F06gk888_processed.jpeg&w=3840&q=75)
Transcribed Image Text:On September 27, 2015, Koala, Inc. issued a 10 year bond
(with a typical $1,000 face value) that had an annual
coupon value of $65. [We are assuming that the 2021
coupon has just been redeemed.]
Initially, the bond was sold at a discount price of
$978.
• On September 27, 2021, this bond was selling at a
premium for $1,010.
• The market rate of interest for a riskless corporate
bond, of this maturity (i.e., a Treasury security),
was 2.8% on September 27, 2015, which reflects
market expectations about future rates of inflation.
• The market rate of interest for a riskless corporate
bond, of this maturity (i.e., a Treasury security),
was 1.9% on September 27, 2021, which reflects
market expectations about future rates of inflation.
1. What was the nominal yield on this bond on
September 27, 2015? [To 1 decimal place.]
2. What was the current yield on this bond on September
27, 2015? [To 3 decimal places.]
3. What was the yield to maturity for this bond on
September 27, 2015? [To 2 decimal places.]
4. What was the risk premium for this bond on
September 27, 2015? [To 2 decimal places.]
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