QUESTION THREE You are considering purchasing a 20-year, $100, 12% coupon, bond, interest on which will be paid at the end of the year. Its owner has already received the fourth year's interest payment. What is the maximum price at which you should buy the bond today if you can get 10% on your money from an alternative investment that has the same risk?

QUESTION THREE You are considering purchasing a 20-year, $100, 12% coupon, bond, interest on which will be paid at the end of the year. Its owner has already received the fourth year's interest payment. What is the maximum price at which you should buy the bond today if you can get 10% on your money from an alternative investment that has the same risk?

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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Similar questions

QUESTION 1 An investor buys a $10,000 par, 5% coupon (semiannual payments) TIPS security with two years to maturity. If inflation every six months over the two years is 2.4 percent, what is the final payment (principal and interest) the TIPS investor will receive? Input your final answer using two decimal places. Do not round intermediate calculations.
Assume you can buy a bond that has a par value of $1000, matures in 10 years, yielding 6% and has a duration of 5. If you would like to use this bond to form a guaranteed investment contract “GIC” and offer a guaranteed rate of return to investors for certain years. a. what is the maximum yield you can offer? Why? Explain. b. For how many years would you make the guarantee? Explain.
QUESTION 2 A 4.5 percent coupon bond with 12 years left to maturity is priced to offer a 6 percent yield to maturity. What is the price of the bond? Assume interest payments are paid semi-annually. QUESTION 4 A firms is considering a project which costs $1,000. The cash flows for the first 5 years are as follows: year 1: $200, year 2: $250, year 3: $350, year 4: $600, year 5: $600. The cost of capital is 10 percent. Compute the Payback statistic for the project. QUESTION 11 If a company's current stock price is $74.50 and it is likely to pay a $3.50 dividend next year. Since analysts estimate the company will have a 10% growth rate, what is its expected return? QUESTION 17 A company has a beta of 1.3. If the market return is expected to be 16 percent and the risk-free rate is 6 percent, what is the company's required return?
What price would you pay for a 10-year, AA bond with a Face Value of $1,000 and a coupon rate of 7.10%?
Question 8 You owe $40,000 in 2 years' time. Annualised yields are 7% at all horizons. There is a 1-year zero-coupon bond, and a 5-year annuity paying $4 per year. To the nearest cent, how much should you invest in the 1-year bond and 5-year annuity to immunise yourself against interest rate risk?
Pls provide step by step answer
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A short question 4) You are managing a portfolio of $1 million. Your target duration is 10 years, and you can choose from two bonds: a zero-coupon bond with maturity of 5 years, and a perpetuity*, each currently yielding 5%. a. How much of each bond will you hold in your portfolio? b. How will these ratios change next year if target duration is now 9 years? *: Perpetuity: a specal case of annuity, where n-> Inf, thus the maturity of the instrument is perpetual.
HW#3 Consider a coupon bond that has a $1,000 par value and a coupon rate of 10%. The bond is currently selling for $1,150 and has 8 years to maturity. What is the bond’s yield to maturity? A 10-year, 7% coupon bond with a face value of $1,000 is currently selling for $871.65. Compute your rate of return if you sell the bond next year for $880.10. Consider the decision to purchase either a 5-year corporate bond or a 5-year municipal bond. The corporate bond is a 12% annual coupon bond with a par value of $1,000. It is currently yielding 5%. The municipal bond has an 8.5% annual coupon and a par value of $1,000. It is currently yielding 7%. Which of the two bonds would be more beneficial to you? Assume that your marginal tax rate is 35%. Calculate the duration of a $1,000 6% coupon bond with three years to maturity. Assume that all market interest rates are 7%. Consider the bond in the previous question. Calculate the expected price change if interest rates drop to 6.75% using the…
Consider a long-term, zero coupon bond that has a face value of $100,000 and matures in thirteen years. If you require a return of 4.52%, what are you willing to pay for the instrument today? $56,286.96 $53,852.81 $95,675.47 $177,661.05
M1

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