Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield tomaturity) decline from 10 percent to 8 percent.a. What is the bond price at 10 percent?Bond priceb. What is the bond price at 8 percent?Bond pricec. What would be your percentage return on investment if you bought when rates were 10 percent and sold when rates were 8percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)Return on investment< Prey 2 of 10MacBook AirNext > Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield tomaturity) decline from 10 percent to 8 percent.a. What is the bond price at 10 percent?Bond priceb. What is the bond price at 8 percent?Bond pricec. What would be your percentage return on investment if you bought when rates were 10 percent and sold when rates were 8percent? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)Return on investment< Prey 2 of 10MacBook AirNext >

The question is based on the concept of security valuation in Financial Management. The fair value…

Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decline from 10 percent to 8 percent. a. What is the bond price at 10 percent? Bond price b. What is the bond price at 8 percent?

Refer to Table 10-1, which is based on bonds paying 10 percent interest for 20 years. Assume interest rates in the market (yield to maturity) decline from 10 percent to 8 percent. a. What is the bond price at 10 percent? Bond price b. What is the bond price at 8 percent?

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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A 6-year bond pays interest of $80 annually and sells for $975. What is its coupon rate, current yield, and yield to maturity?
An insurance company is analyzing two bonds and is using duration as the measure of interest rate risk. Both the bonds trade at a yield to maturity of 8 percent, have $10,000 par values, and have five years to maturity. The bonds differ only in the amount of annual coupon interest that they pay: 5 and 7 percent. What is the duration for each five-year bond?
A bond of Visador Corporation pays $70 in annual interest, with a $1,000 par value. The bonds mature in 16 years. The market's required yield to maturity on a comparable-risk bond is 8.5 percent. a. Calculate the value of the bond. b. How does the value change if the market's required yield to maturity on a comparable-risk bond (i) increases to 12 percent or (ii) decreases to 5 percent? c. Interpret your finding in parts a and b.
Consider the following two Treasury securities: Bond Price Modified duration (years) A $100 6 B $80 7 For a 25 basis-point change in interest rates, which bond has the greatest percentage change in price? A. Bond A B. Bond B C. Can't be determined
Suppose that all bonds have $1,000 of face value. The current prices of zero coupon bonds are as follows: $960 for a one-year bond; $910 for a two-year bond; $850 for a three-year bond. a. What is the price of a three-year bond with 8% annual coupon payment? b. What is the YTM of the two-year zero coupon bond? c. Consider the following two-year bonds: (i) a zero coupon bond as above; (ii) a bond with 6% annual coupon payment. Whose YTM is higher?
A Treasury bond that matures in 10 years has a yield of 4.25%. A 10-year corporate bond has a yield of 9.00%. Assume that the liquidity premium on the corporate bond is 0.70%. What is the default risk premium on the corporate bond? Round your answer to two decimal places.
Assume that a 5-year bond pays interest of $110 once a year (1 payment/year) and will mature for $1,000. Also assume that the yield to maturity on this bond is currently 12 percent. Given this information, determine the duration of this bond. Enter your answer in decimal format, truncated to 2 decimal places. For example, if your answer is 7.1186 years, enter "7.11".
A bond with 12 years to maturity has an annual interest payment of $65. If the bond sells for its par value, what are the bond's current yield and yield to maturity? Round your answers to two decimal places. CY: ....% YTM: .....%
You own a bond that pays $100 in annual interest, with a $1,000 par value. It matures in 15years. The market's required yield to maturity on a comparable-risk bond is 11 percent. a. Calculate the value of the bond. b. How does the value change if the yield to maturity on a comparable-risk bond (i) increases to 16 percent or (ii) decreases to 6 percent? c. Explain the implications of your answers in part b as they relate to interest-rate risk, premium bonds, and discount bonds. d. Assume that the bond matures in 5 years instead of 15 years and recalculate your answers in parts a and b. e. Explain the implications of your answers in part d as they relate to interest-rate risk, premium bonds, and discount bonds.
A General Power bond carries a coupon rate of 9.7%, has 9 years until maturity, and sells at a yield to maturity of 8.7%. (Assume annual interest payments.) a. What interest payments do bondholders receive each year? b. At what price does the bond sell? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. c. What will happen to the bond price if the yield to maturity falls to 7.7%? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. a. Interest payments b. Price c. Price will by rise fall
The following table gives the prices of bonds Bond Principal ($) Time to maturity Annual coupon ($) Bond Price ($) 100 (years) 0.5 100 1 100 100 1.5 2 The bonds provide coupon are semiannual coupon bond a. Calculate 6-month, 12-month, 18-month and 24-month zero rates. 1567 0 98 100 100 101 b. What is the forward rate for the six-month period beginning in 12 months. c. Estimate the price of a two-year bond providing annual coupon of 7% annually.
The Salem Company bond currently sells for $848.55, has a coupon interest rate of 14%and a $1000 par value, pays interest annually, and has 16 years to maturity. a. Calculate the yield to maturity (YTM) on this bond. b. Explain the relationship that exists between the coupon interest rate and yield to maturity and the par value and market value of a bond.

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