Problem 16-15 (Algo) Profit potential associated with margin [LO 16-2] A $1,000 par value bond was issued 25 years ago at a 12 percent coupon rate. It currently has 15 years remaining to maturity. Interest rates on similar obligations are now 10 percent. Assume Ms. Bright bought the bond three years ago when it had a price of $1,080. Further assume Ms. Bright paid 30 percent of the purchase price in cash and borrowed the rest (known as buying on margin). She used the interest payments from the bond to cover the interest costs on the loan. a. What is the current price of the bond? Use Table 16-2. Note: Input your answer to 2 decimal places. Price of the bond b. What is her dollar profit based on the bond's current price? Note: Do not round intermediate calculations and round your answer to 2 decimal places. Dollar profit
Problem 16-15 (Algo) Profit potential associated with margin [LO 16-2] A $1,000 par value bond was issued 25 years ago at a 12 percent coupon rate. It currently has 15 years remaining to maturity. Interest rates on similar obligations are now 10 percent. Assume Ms. Bright bought the bond three years ago when it had a price of $1,080. Further assume Ms. Bright paid 30 percent of the purchase price in cash and borrowed the rest (known as buying on margin). She used the interest payments from the bond to cover the interest costs on the loan. a. What is the current price of the bond? Use Table 16-2. Note: Input your answer to 2 decimal places. Price of the bond b. What is her dollar profit based on the bond's current price? Note: Do not round intermediate calculations and round your answer to 2 decimal places. Dollar profit
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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![Problem 16-15 (Algo) Profit potential associated with margin [LO 16-2]
A $1,000 par value bond was issued 25 years ago at a 12 percent coupon rate. It currently
has 15 years remaining to maturity. Interest rates on similar obligations are now 10 percent.
Assume Ms. Bright bought the bond three years ago when it had a price of $1,080. Further
assume Ms. Bright paid 30 percent of the purchase price in cash and borrowed the rest
(known as buying on margin). She used the interest payments from the bond to cover the
interest costs on the loan.
a. What is the current price of the bond? Use Table 16-2.
Note: Input your answer to 2 decimal places.
Price of the bond
b. What is her dollar profit based on the bond's current price?
Note: Do not round intermediate calculations and round your answer to 2 decimal
places.
Dollar profit](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3d49d519-e145-4b77-9be2-d8283cdafa13%2F94f50cff-8da8-42b9-8143-74d76afbfde4%2Fplqqgfr_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 16-15 (Algo) Profit potential associated with margin [LO 16-2]
A $1,000 par value bond was issued 25 years ago at a 12 percent coupon rate. It currently
has 15 years remaining to maturity. Interest rates on similar obligations are now 10 percent.
Assume Ms. Bright bought the bond three years ago when it had a price of $1,080. Further
assume Ms. Bright paid 30 percent of the purchase price in cash and borrowed the rest
(known as buying on margin). She used the interest payments from the bond to cover the
interest costs on the loan.
a. What is the current price of the bond? Use Table 16-2.
Note: Input your answer to 2 decimal places.
Price of the bond
b. What is her dollar profit based on the bond's current price?
Note: Do not round intermediate calculations and round your answer to 2 decimal
places.
Dollar profit
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