Part B:At t=0, you purchase a four-year, 5 percent coupon bond (paid annually) that is priced toyield 6 percent continuously compounded (YTM = 6% continuously compounded). Theface value of the bond is $1,000. The bond issuer is the U.S. government (no liquidityrisk).You are also given that your holding period (investment horizon) equals to 3.70 years(t=T=3.70 years).Suppose that the market interest rate changes to 5.50 percent continuously compoundedduring the first year of your purchase (within year 1), and it remains at that level for theremaining life of the bond.Assume that, the reinvestment rate for the first coupon payment is the new interest ratethat is, 5.50 percent continuously compounded. In addition, you will reinvest the couporpayments in a zero-coupon bond.What is your continuously compounded Holding Period Return of your investment at theend of your investment horizon (t=3.70) years?(Round-off to four decimal places, to obtain as accurate answer as possible on Canvas.)

\lambda t~t=0. you purchase a four-year, 5 percent coupon bond (paid annually) that is priced to…

Answered: Part B: At t=0, you purchase a…

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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5) You purchase a 30 year bond with nominal semiannual coupon rate 7% and nominal semiannual yield rate of 6% and face value of $1,000. If you sell the bond immediately after receiving your 20th semiannual coupon payment for a price of $925, then find your actual semiannual nominal yield rate for the 10 year period, and find the buyer's semiannual nominal yield rate for the 20 year period.
the following features: • Coupon rate of interest (paid annually): 10 percent • Principal: $1,000 • Term to maturity: 8 years a. What will the holder receive when the bond matures? |-Select- b. If the current rate of interest on comparable debt is 7 percent, what should be the price of this bond? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. Would you expect the firm to call this bond? Why? -Select- v, since the bond is selling for a-Select- v. c. If the bond has a sinking fund that requires the firm to set aside annually with a trustee sufficient funds to retire the entire issue at maturity, how much must the firm remit each year for eight years if the funds earn 7 percent annually and there is $80 million outstanding? Use Appendix C to answer the question. Round your answer to the nearest dollar.
(Related to Checkpoint 9.2) (Yield to maturity) The Saleemi Corporation's $1,000 bonds pay 12 percent interest annually and have 11 years until maturity. You can purchase the bond for $945. a. What is the yield to maturity on this bond? b. Should you purchase the bond if the yield to maturity on a comparable-risk bond is 14 percent? Question content area bottom Part 1 a. The yield to maturity on the Saleemi bonds is enter your response here%. (Round to two decimal places.)
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You're given two investment options: Bond X: A regular 2-year bond with a coupon rate of 4% per year, payable semi-annually. Its current price is $975.Bond Y: A 2-year real-return bond with a coupon rate of 3% per year, payable annually. Its current price is $980. What is the average annual inflation rate over the next 2 years that would make the nominal rates of return of the two choices the same? Use continuous compounding only
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Nancy Jackson is interested in buying a five-year zero coupon bond with a face value of $1,000. She understands that the market interest rate for similar investments is 9.1 percent. Assume annual coupon payments. What is the current value of this bond? (Round answer to 2 decimal places, e.g. 15.25.) Current value of bond $
N
The Saleemi Corporation's $1,000 bonds pay 6 percent interest annually and have 15 years until maturity. You can purchase the bond for $1,155. a. What is the yield to maturity on this bond? b. Should you purchase the bond if the yield to maturity on a comparable-risk bond is 6 percent? Question content area bottom Part 1 a. The yield to maturity on the Saleemi bonds is enter your response here%.
4) A coupon bond pays this amount every 6 months; $ 30.00 bgs for the number of payments/year; 2 The bond also pays at maturity the par (face) value; $ 1,000.00 Number of years until maturity 15 The required return of holders of this bond is; 8.00% bgs a) What is the PV of the CFs, or what would be the fair price to purchase this bond? b) If the required return of holders of this bond is; 6.00% bgs What is the PV of the CFs, or what would be the fair price to purchase this bond? c) If the required return of holders of this bond is; 4.00% What is the PV of the CFs, or what would be the fair price to purchase this bond? to purchase this bond? bgs d) If the previous bond sells for; $ (976.00) What must be the yield to maturity for this bond (aka IRR) ? (to…
You want to invest in a bond for one year, and are deciding between the following two choices - Bond A and Bond B, both of which have a maturity of 1 year and a par value of $1,000.Bond A is a regular(i.e., nominal- return) with a couponrate of 3% per year, payable semi-annually. The current price of Bond A is $998. Bond B is a real-return bond with a coupon rate of 2% per year, payable annually. The current price of Bond B is $1,000. What is the inflation rate (over the next year) that will make the (nominal) ratesof return of the two choices the same?
Suppose that you have purchased a EUR bond issued by Deutsche Bank. At the time of the purchase, the price of the bond was EUR 98.5M. The bond matures in 3 years, pays a fixed 5% coupon bond, and has a face value of EUR 100M. That is the expected YTM in USD if the spot rate is USD 1/EUR, F1 is USD 1.12/EUR, F2 is USD 1.15/EUR, F3 is USD 1.18/EUR? Please enter your answer as % -- e.g. if your answer is 2.34% type in 2.34.

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