QUESTION 6A.B.Maturity(years)1D.23$114.51$113.45$112.508Spotrate(%)$120.541.251.50192-yearsfromnow1.908Using the spot rates, what would be the valueof an option-free bond that pays 6% annualcoupon? Par value is $100.1-yearForwardrate (%)1.704910-yearsfromnow1.251-yearfromnow1.75Cashflow$3$3$103

A bond is a debt instrument that provides capital to the companies from investors rather than traditional institutions. A feature of the bonds is that they are tradeable on the market. The value of the option-free bond comes out to be Value of bond = ∑iCouponi1+rateii+Face value1+rateNN= 6%×$1001+0.01251+6%×$1001+0.0150192+6%×$1001+0.01704913+$1001+0.01704913= $61.0125+$61.03026357+$61.05202427+$1001.05202427= $5.926+$5.824+$5.703+$95.055= $112.508 The value of the option-free bond is $112.508. Therefore, the correct answer is option C.

Answered: QUESTION 6 Matur ity (year 1 2 3 A. O…

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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Given only the information provided, which bond would you suspect of having the lowest duration? Coupon Current Price Remaining Term Bond A 5% $ 703.11 20 years Bond B 7% $ 932.05 10 years Bond C 11% $ 1,078.63 3 years Bond D 11% $ 1,296.89 20 years Question 18 options: Bond A Bond B Bond C Bond D
V5
QUESTION 2 • The following two investment options are viewed under an annual effective interest rate of i. Investment A is a 10-year zero coupon bond which redeems at par-value 250. Investment B is a perpetuity-immediate paying an annual payment starting with 4 and having each successive payment increase by K% from the previous payment. • If the volatility of each investment is 8, then find the value of K. Give your answer as a decimal rounded to two places (i.e. X.XX)...i.e. if your answer was K% = 2.54%, you would answer 2.54. ||
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BOND PRICE A B с 101.886 5% 100 6% 97.327 5% COUPON TIME TO RATE O Bond C Bond A Which bond will most likely experience the smallest percentage change in price if the market discount rates for all three bonds increase by 100 basis point? Bond B MATURITY 2 years 2 years 3 years
QUESTION 15 Suppose that all investors expect that the interest rates for the 4 years will be as follows. What is the price of a 3-year zero coupon bond with par-$1,000? Year 1-Year Forward rate 4.6% 2 4.9% 3 5.2% 4 5.5% O a. $1,000.00 Ob. $866.32 Oc. $858.92 Od. $821.15

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