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 itmatures, your realized return is known as the holding period yield (HPY)a. Suppose that today you buy an annual coupon bond with a coupon rate of 8 3 percent for $785 The bond has 8 years to maturityand a par value of $1,000. What rate of return do you expect to earn on your investment?Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.b-1. Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for?Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.b-2. What is the HPY on your investment?Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.a. Rate of returnb-1. Price%b-2. Holding period return%

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Answered: The YTM on a bond is the interest rate…

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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Suppose the continuous forward rate is r(t) = 0.04 + 0.001t when a 8 year zero coupon bond is purchased. Six months later the forward rate is r(t) = 0.03 + 0.0013t and bond is sold. What is the return?
Suppose you buy a bond with 3 years to maturity. The face value is 1000 and the coupon rate is 12 %. Assume after holding the bond for one year the market interest rate falls to 8 % a. What will be the new price of your bond? b. What will be the annual rate of return on your bond? c. Discuss the interest rate risk on bonds using your results in parts (a) and (b)?
Suppose you purchase bond that has a coupon of $75 face value of $1000 and current price of $1000 what is your coupon rate?what is your current yield?
Conceptually good pls
1. Consider two bonds with a similar credit rating and pay the same coupon rate per annum. The terms to maturity for Bond A and Bond B are 5 years and 10 years respectively. If inflation rate is expected to increase in the near future and therefore leads to an increase in interest rate, what is the effect on the bond prices? Which bond is likely to experience a larger effect due to the increase in interest rate? Briefly explain your answer.
For the following questions, assume the normal case that coupon payments are semi-annual. a. What is the yield to maturity on a 10-year, 5.3% coupon bond if the bond is currently selling for $1,000? b. For the bond above, suppose that immediately after purchase market rates change to 3.00%. If you hold the bond for 3 years and then sell it, what is your effective annual return on this investment? a. The YTM is % (enter response rounded to decimal places; i.e., x.xx%) b. Your effective annual return is % (enter response rounded to decimal places; i.e., x.xx%)
You have a risk-free bond with 2 years to maturity. The bond has a face value of $ 1000 and a coupon rate of 5%. The next coupon will be paid one year from now, and the bond pays annual coupons. a. What is the price of the bond? What is its own yield to maturity? Is it trading at a discount or at a premium? b. Suppose you buy the 2-year bond above, and you sell it after one year. What is the expected return on your investment?Kindly solve the question in 10 mins. It is urgent.
The yield curve currently observed in the market is as follows: y1 = 7%, Y2 = 8%, and yz = 9%. You are trying to decide between buying a two-year bond (Bond A) and three-year bond (Bond B), each of which is default-risk free and pays annual coupons of 8% per year. You strongly believe that yield curve in one year will become flat at 9%. Which one of the two bonds should you buy today if you plan to sell this bond in exactly one year (right after you receive the first coupon payment)? Assume interest is compounded annually, and each bond has a face value of $1,000. Bond B O Neither bond -- The expected total return of both bonds will be negative if interest rates increase to 9% in one year Bond A Both bonds provide the same return over a one year investment horizon A portfolio that invests 50% of your wealth in each bond provides the highest total expected return
You have two bonds in your portfolio, Bond Y and Bond Z. Bond Y matures in 10 years and Bond Z matures in 5 years. They both have the same coupon rates. If interest rates increase or decrease which bond would you expect to have the largest change in their market price?
1. Consider a real return bond with a face value of $15,000 and a coupon yield of 5.2%. What is the coupon payment after one year if the inflation rate is 6.8%? Select one: a) $817.44 b) $833.04 c) $825.24 d) $809.64 I
You are a fixed income analyst with an active investment in two bonds. X and Y. Bond X has a coupon rate of 9% and Bond Y has a 10% annual coupon. Both bonds have 5 years to maturity. The yield to maturity for both bonds is now 10%. If the required return rises by 14%, by what percentage will the price of the bond X change? Please provide complete details of the calculations (formula/steps) of the above question
Suppose you purchase a $1000 Face-Value Zero-Coupon Bond with maturity 30 years and yield to maturity 4% quoted with annual compounding. Show the bond cash flows on a time line and compute the current price of the bond Draw a graph to illustrate how the price of this bond will change as it gets closer to maturity – Price (on y axis) vs Time (on x axis). Why is a zero-coupon bond more sensitive to interest rate changes than similar coupon bearing bonds (2 or 3 sentences)?

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