The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). (Round the final answers to 2 decimal places.) a. Suppose that today you buy an 9.8% annual coupon bond for $1,240. The bond has 19 years to maturity. What rate of return do you expect to earn on your investment? Expected rate of return b-1. Two years from now, the YTM on your bond has declined by 1%, and you decide to sell. What price will your bond sell for? (Omit $ sign in your response.) Bond price $ b-2. What is the HPY on your investment? HPY % %

The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). (Round the final answers to 2 decimal places.) a. Suppose that today you buy an 9.8% annual coupon bond for $1,240. The bond has 19 years to maturity. What rate of return do you expect to earn on your investment? Expected rate of return b-1. Two years from now, the YTM on your bond has declined by 1%, and you decide to sell. What price will your bond sell for? (Omit $ sign in your response.) Bond price $ b-2. What is the HPY on your investment? HPY % %

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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Assume that the Pure Expectations Theory of the term structure is correct. Also assume that the interest rate today on a 9-year security is 6.40%, while the interest rate today on a 15-year security is 8.00%. Finally assume that the interest rate on a 3-year security to be bought at Year 9 and held over Years 10, 11, and 12 is 6.80%. Given this information, determine the average annual return that investors today must expect that they will receive from investing in a 3-year security in 12 Years (that is, buying the security at Year 12 and holding it over Years 13, 14, and 15). O 13.00% O 12.50% 13.50% O 12.00% O 14.00%
When you use the effective annual yield on a semi-annual coupon bond to price the corresponding annual coupon bond, do you get the same price?
Suppose you buy a bond with a coupon of 8.2 percent today for $1,100. The bond has 7 years to maturity. Assume interest payments are reinvested at the original YTM. a. What rate of return do you expect to earn on your investment? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Rate of return % b. Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. What price will your bond sell for? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Price
Suppose you purchased a 20-year U.S. treasury bond with a 6% annual coupon ten years ago at par, but coupon payments are made semi-annually. Today the bond's yield to maturity has risen to 8% a. If you hold the bond until maturity, what is the yield that you will earn on your investment? b. If you sell the bond now, what will be the price at which you sell the bond? c. If you sell the bond now, what annual return (yield) that you have made on this bond?
2
The bond J is a bond with a coupon rate of 4%. The bond K is a bond with a coupon rate of 10%. Both bonds have a maturity of 8 years, make semi - annual payments, and have a yield to maturity of 9%. If interest rates suddenly increase by 2%, what is the percentage change in the price of these bonds? And if the rates suddenly decrease by 2%? What does this problem teach you about the interest rate risk of low - coupon bonds?
What is the price of a bond with the following information? It is 1.5 years until expiration. The coupon rate is 7 percent and coupon payments are made once per year. The market rate of return is 5.9 percent. The bond has a face value of 2000 SEK. Tips Draw a time axis so that you do not make any mistakes with the discounting. Don't look at the cash flows as an annuity, but as two separate cash flows. There is always a coupon payment when the bond matures, how long is it then until the next coupon payment? (Answers are rounded to integers) a) 265 b) 2100 c) 1971 d) 1990 e) 2216
You buy a bond today that has a coupon rate of 6.5%, with 10 years to maturity, and is trading at a YTM of 5.6% Assume that one year later, the bond is trading at a YTM of 5.0% What was the annual percentage return you earned by owning the bond? TIP: The annual return on a bond is equal to (Price(1) - P(0) + Coupon Payments)/P(0) See textbook, Section 6.4 Bond Rates of Return. Remember that when you calculate the value of the bond in one year, you will have received two coupons. Also, when you use the above formula, the prices of the bonds P(0) and P(1), as well as the coupons, should be calculated as dollars, not percentages of par value.
In calculating the current price of a bond paying semiannual coupons, one needs to O use double the number of years for the number of payments made. O use the semiannual coupon. O use the semiannual rate as the discount rate. O All of the above needs to be done.
Consider the zero coupon Treasury bond yield curve. Suppose a 1 year bond has a yield of 2.13%. The yield curve slopes downwards between maturities of 1 year and 3 years, and then slopes upwards. Which of the following must be true? Group of answer choices A) The yield of a zero coupon bond with maturity 5 years is higher than 2.13%. B) A 1 year positive coupon bond must have a lower price than the zero coupon bond with the same maturity. C) Bond purchasers believe the Fed will decrease rates in the short run, and then increase them in the long run. D) The economy will be in a recession within 2 years. E) C and D.
Consider the following $1,000 par value zero-coupon bonds: Bond Years to Maturity Bond B According to the expectations hypothesis, what is the market's expectation of the yield curve one year from now? Specifically, what are the expected values of next year's yields on bonds with maturities of (a) one year? (b) two years? (c) three years? (Do not round intermediate calculations. Round your answers to 2 decimal places.) с D YTM(%) 5.1% Years to Maturity 1 2 3 6.1 6.6 7.1 YTM (%) % % %
Find the price of the bond. Solve the question without using Excel and provide the necessary calculations.

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