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). 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 maturity and 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 return b-1. Price b-2. Holding period return 6.57 % %

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). 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 maturity and 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 return b-1. Price b-2. Holding period return 6.57 % %

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 that your firm issued a bond with 10 years until maturity, a face value of $1000, and a coupon rate of 7% (annual payments). The yield to maturity on this bond when it was issued was 6%. a) What is the holding period return for investors immediately BEFORE the first coupon payment? Now, Assume that this bond DOES NOT pay any coupon b) What was its price when it was issued?
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 own a bond with an annual coupon rate of 5% maturing in two years and priced at 85%. Suppose that there is a 23% chance that at maturity the bond will default and you will receive only 45% of the promised payment. Assume a face value of $1,000.A. What is the bond’s promised yield to maturity?B. What is its expected yield (i.e., the possible yields weighted by their probabilities)
Solve it correctly please. I will rate accordingly.
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?
A bond with 5 years to maturity, a face value of $2,000 and a coupon rate of 8.0% is selling for $1750. What is its yield to maturity? If the yield changes to 8.0%, what will be the new price of the bond? (Assume annual coupon payments.)
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)?
Suppose you purchase a 10-year bond with 6% annual coupons. You hold the bond for four years and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 4.01% when you purchased and sold the bond, a. What cash flows will you pay and receive from your investment in the bond per $100 face value? b. What is the internal rate of return of your investment? Note: Assume annual compounding. The cash flow at time 1-3 is $ (Round to the nearest cent. Enter a cash outflow as a negative number.) (Round to the nearest cent. Enter a cash outflow as a negative number.) The cash outflow at time 0 is $ The total cash flow at time 4 (after the fourth coupon) is $ negative number.) b. What is the internal rate of return of your investment? (Round to the nearest cent. Enter a cash outflow as a
Assume you can buy a bond that has a par value of $1000, matures in 10 years, yielding 6% and has a duration of 5. If you would like to use this bond to form a guaranteed investment contract “GIC” and offer a guaranteed rate of return to investors for certain years. a. what is the maximum yield you can offer? Why? Explain. b. For how many years would you make the guarantee? Explain.
What is the price of a bond with a coupon rate of 4% making semi-annual payments with a face value of $1,000 that matures in 10 years when a. the YTM on the bond is 8.6%? B. the Y IM Is 6.6%? C. the YTM is 5.0%? d. What is the relationship between YTM and price?
Suppose today you buy a coupon bond that you plan to sell one year later. Which of the rate of return formula incorporates future changes into the bond's price?

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