Problem 6-20 Interest Rate Risk [LO 2]Bond J has a coupon rate of 4.8 percent. Bond K has a coupon rate of 14.8 percent. Both bonds have eleven years to maturity, a parvalue of $1,000, and a YTM of 10.6 percent, and both make semiannual payments. Remember, price change equals (ending price -beginning price) / beginning price or ending price/beginning price - 1.a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds?Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answersas a percent rounded to 2 decimal places, e.g., 32.16.b. If interest rates suddenly fall by 2 percent instead, what is the percentage change in the price of these bonds?Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.a. Percentage change in priceb. Percentage change in priceBond JBond K%%%%

This problem is about interest rate risk and how it affects bonds with different coupon rates. We'll…

Answered: Problem 6-20 Interest Rate Risk [LO 2]…

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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Net Cash Flows and NPVs for different discount rate for projects S and L are given below Net Cash Flows ($) Discount Rate (%) NPVS NPVL Year (t) Project S Project L 0% $800 $1100 0 $(3000) $(3000) 5 554.32 1 1500 400 10 161.33 2 1200 900 15 (90.74) (259.24) 3 800 1300 20 (309.03) (565.97) 4 300 1500 a) Calculate the payback period in years for the Project S and Project L i) Payback for Project S: ii) Payback for Project L: c) Calculate NPVS for 5% and NPVL for 10%. Fill the table i) NPVS at 5%: ii) NPVS at 10%: d) What is the IRR for S? (Write down the equation for IRR and then Use an excel worksheet to calculate IRR Equation: Answer: e) What is the IRR for S? (Write down the equation for IRR and then Use an excel worksheet to calculate IRR Equation: Answer: f) What is the cross-over rate? (Write down the equation for IRR and then Use…
Problem 7-13 Bond Prices and Interest Rate Changes (LG7-5) A 6.05 percent coupon bond with 15 years left to maturity is priced to offer a 7.1 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.0 percent. Assuming semiannual interest payments, what is the change in price the bond will experience in dollars? Note: Do not round intermediate calculations. Round your final answer to 2 decimal places.
D & R A1 8 - 1 Question 8. Cheapest-to-Deliver Bond Today is July 1. You hold a November Treasury bond futures contract with a price of 92:15 (i.e., 92 plus [15/32]), with a delivery date of November 15 in the same year. You have identified the two bonds below that could be used for delivery against the futures contract: Bond A Bond B Maturity 26.5 years 31 years Coupon rate 5% 8.5% Asking price 93:2 144:13 Coupon dates April 15, October 15 June 15, December 15 Callable? No No Assume that the next year is not a leap year, and that the market repo rate is 5.50%. Find the conversion factors for Bond A and Bond B. Use the downloadable Excel spreadsheet on the Chicago Mercantile Exchange (CME) website: http://www.cmegroup.com/trading/interest-rates/us-treasury-futures-conversion-factor-lookup-tables.html.
Q 20 Calculate the price of a 5.7 percent coupon bond with 22 years left to maturity and a market interest rate of 6.5 percent. (Assume interest payments are semiannual.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.) BOND PRICE_______ Is this a discount or premium bond?multiple choice premium bond discount bond
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Duo Corporation is evaluating a project with the following cash flows: Year Cash Flow -$ 28,300 012345 10,500 13,200 15,100 12,200 -8,700 The company uses an interest rate of 9 percent on all of its projects. a. Calculate the MIRR of the project using the discounting approach. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. Calculate the MIRR of the project using the reinvestment approach. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. Calculate the MIRR of the project using the combination approach. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Discounting approach MIRR b. Reinvestment approach MIRR c. Combination approach MIRR % % %
Problem 11-4 A bond currently sells for $1,030, which gives it a yield to maturity of 6%. Suppose that if the yield increases by 30 basis points, the price of the bond falls to $990. What is the duration of this bond? (Do not round intermediate calculations. Round your answer to 4 decimal places.) Duration
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