Suppose you bought a 7 percent annual coupon, a 20-year bond last year when it was first issued. You paid 1,000 for a 1,000 face value bond. The yield-to-maturity of your bond was therefore 7%. If interest rates suddenly rise to 15 percent this year, and hence your bond now has to deliver a 15% yield to maturity. What is your one-year rate of return if you sell the bond this year? -49.58% -8% +49.58% +8% -42.59%

Suppose you bought a 7 percent annual coupon, a 20-year bond last year when it was first issued. You paid 1,000 for a 1,000 face value bond. The yield-to-maturity of your bond was therefore 7%. If interest rates suddenly rise to 15 percent this year, and hence your bond now has to deliver a 15% yield to maturity. What is your one-year rate of return if you sell the bond this year? -49.58% -8% +49.58% +8% -42.59%

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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4. You bought a 10-year, 5% coupon bond for $1,000 and sold it 1 year later for $1,100. What is the rate of return on your investment if the bond pays interest annually? (Round your answer to the nearest whole percent.)
You have a $1000 bond at 5% (coupon rate) that matures in 7 years and pays interest annually. You want to sell it, but the current interest rate on a similar investment that matures in 7 years is now paying 6% interest. What is the current value of your bond?
Assume you have some money and want to save to amass a given amount at the end of 5 years. One of the options you have is a 5-year, 10% coupon bond that is currently selling at par. Assume that bond is default free. What will determine the total amount of money you will have at the end of year 5 if you buy the bond today?
If you purchased a bond one year ago for $1000 and just sold it for $1100 after receiving the $50 annual coupon payment, then what was your real return on the investment if theinflation rate was 2.1% for the same year?
You bought one of Elkins Manufacturing Co.'s 6.8 percent coupon bonds one year ago for $1,054. These bonds make annual payments, mature 15 years from now, and have a par value of $1,000. Suppose you decide to sell your bonds today, when the required return on the bonds is 5 percent. If the inflation rate was 3.6 percent over the past year, what would be your total real return on the investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Total real return %
A bond that matures in 10 years has a $1,000 par value. The annual coupon interest rate is 8 percent and the market's required yield to maturity on a comparable-risk bond is 13 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually? Question content area bottom Part 1 a. The value of this bond if it paid interest annually would be $enter your response here.
1. You buy a 6 year bond with an annual 5% coupon at par value, $1000. If the yield to maturity at the end of the first year changes to 3% what is the end of the year value of the bond(after the coupon payment, remember: bond value does not include this coupon)? 2. Calculate the value of a 6 year 2% coupon bond with semiannual payments, 1000 par. Expected return is the risk free rate of 3%. 3. Price a 5 year 4% semiannual coupon bond if the yield to maturity is 6% (write the price as if par is 100, use 5 decimal places)
A. (1) Suppose that you have a bond with a face value of $1,000 and a coupon rate of 8% for one year and that you buy another one after one year. What will be your gain if the interest rate increases up to 10%? (2) Suppose that the expectations theory is true and that you can buy a three-year bond with an interest rate of 6% or three consecutive one-year bonds with interest rates of 4%, 5%, and 6%. Which option would you choose to undertake? Why? (3) One-year T-bill rates over the next five years are expected to be 4%, 5%, 6%, 6.5%, and 8%. If five-year T-bonds are yielding 13%, what is the liquidity premium on this bond?
You just bought a bond (M=$1000, CR=10%, n=20 years, semiannual coupon pay yielding 10.5%. If you sell the bond one year from today when the yield is 9.75%, what would be your realized (actual) rate of return (before-tax)? 16.996%
Please show work You want to purchase a bond that will pay you $300 per year for the next four years. If the annual interest rate is 4%, then what is the price of your bond if the market is in equilibrium? You buy a stock that is expected to pay a dividend of $300 per year for the next four years. If the discount rate is 5.5%, then what is the stock price in this case? Is this result the one you would expect when comparing this answer to the one you obtained in question 3? Why or why not?
You purchased a zero coupon bond one year ago for $120.36. The bond has a par value of $1,000 and the market interest rate is now 13 percent. If the bond had 17 years to maturity when you originally purchased it, what was your total return for the past year? Assume semiannual compounding.
If you are issuing a bond that will make an annual (once per year) coupon payment of $30 for 20 years, will return a face value payment of $1000 in year 20, and the going interest rate is 2%, then the bond will fetch roughly $___________ in the market. 1160 1600 1000 1240

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