S07-18 Bond Price Movements [LO2]Bond X is a premium bond making semiannual payments. The bond pays a coupon rate of 7.1 percent, has a YTM of 6.4percent, and has 13 years to maturity. Bond Y is a discount bond making semiannual payments. This bond pays acoupon rate of 6.4 percent, has a YTM of 7.1 percent, and also has 13 years to maturity. The bonds have a par value of$1,000.What is the price of each bond today? If interest rates remain unchanged, what do you expect the price of these bondsto be one year from now? In three years? In eight years? In 12 years? In 13 years?Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.

Next, let's calculate the price of each bond in the future at different points in time. The general…

Answered: S07-18 Bond Price Movements [LO2] Bond…

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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8
7.6 For a particular bond market, zero-coupon bonds with face value $100, re-deemable at par, are priced as follows: • bonds redeemable in exactly 1 year are priced at $98, • bonds redeemable in exactly 2 years are priced at $93, • bonds redeemable in exactly 3 years are priced at $89, • bonds redeemable in exactly 4 years are priced at $85.50. Find the yield to maturity of a bond redeemable at 103% of the face value in 4 years with annual coupons of 5%.
None
Ins 8. Suppose that today's interest rate on 1-year bonds is 4% (i10 year bonds next year, in two years, and in three years are expected to be 5%, 6%, and 7%, respectively. 0.04). Interest rates on 1- ha a. According to the Expectations Theory of Term Structure, what are the equilibrium interest rates today for otherwise comparable 2-year, 3-year, and 4-year bonds? b. Draw the yield curve for that case. or
B8
Question 07 a) Consider a 20 year 7.20% annual coupon bond whose duration is approx. 11 years when required rate of return (yield to maturity) is 7.50%. Prove that this bond is immunized if you hold it for 11 years. b) Consider a 10 year 6.50% annual coupon bond whose duration is 7.50 years when required rate of return (yield to maturity) is 6.50%. Prove that this bond is immunized if you hold it for 7.50 years. Note: Do not use Ms Excel.
a. b. C. Problem 9.4: R & J, Inc. issues a 10-year $1,000 bond that pays $28.50 semi-annually. The market price for the bond is $975. The market's required yield to maturity on a comparable-risk bond is 6 percent. a. What is the value of the bond to you?. b. What happens to the value if the market's yield to maturity on a comparable-risk bond (i) increases to 8 percent or (ii) decreases to 4 percent? c. Under which of the circumstances in parts a & b should you purchase the bond? Years Par (FV) PMT Nper m Comparable risk (Rate) Bond value (PV) Comparable risk (Rate) Bond value (PV) Comparable risk (Rate) Bond value (PV)
7A-2 Consider each of the bonds below: 7A-2.Bond A has an 8-year maturity and a 7% annual coupon.Bond B has a 10-year lifespan and a 9% annual coupon.Bond C has a 12-year maturity with no coupon.The bonds have a $1,000 face value and an 8% yield to maturity. Which of the comments below is the most accurate?a. Bond A is sold at a discount, while Bond B is sold at a higher price.b. Bond C would see the highest percentage rise in price if the yield to maturity of each bond drop to 7%.c. Bond C has the highest chance of reinvestment pace.d. Both a and b are right statements.e. All of the above claims are true.
Q21 A bond coupon rate of 9%. It matures after 8 years. It has a current market price of OMR 96. Assume that coupons are semi-annual payments. What is annual coupon payment amount of the Bond? a. OMR 8.64 b. OMR 4.32 c. OMR 4.5 d. OMR 9
Ef 229.
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2:37 Vo) 1 LTE2 ا... 46 ... 22 ] (Related to Checkpoint 9.2) (Yield to maturity) The Saleemi Corporation's $1,000 bonds pay 6 percent interest annually and have 12 years until maturity. You can purchase the bond for $1,055. a. What is the yield to maturity on this bond? b. Should you purchase the bond if the yield to maturity on a comparable-risk bond is 4 percent? ||| a. The yield to maturity on the Saleemi bonds is %. (Round to two decimal places.) = O 41%

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