TIPS A TIPS bond with a $1,000 par value was issued three years ago with a coupon rate of 9%. In the first year inflation was 6%, in the second year 6.5% and in the third year 7%. The coupon payment at the end of the third year would be

TIPS A TIPS bond with a $1,000 par value was issued three years ago with a coupon rate of 9%. In the first year inflation was 6%, in the second year 6.5% and in the third year 7%. The coupon payment at the end of the third year would be

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter6: Bonds (debt) - Characteristics And Valuation

Section: Chapter Questions

Problem 12PROB

See similar textbooks

Related questions

Q: A factory costs $540,000. You forecast that it will produce cash inflows of $170,000 in year 1,…

A: Value of Factory is the Net Present Value (NPV)NPV = PV of Cash inflows - PV of Cash Outflows…

Q: Pelzer Printing Inc. has bonds outstanding with 10 years left to maturity. The bonds have a 9%…

A: Given information,Par value: $ 1,000Time to maturity: 10 yearsCoupon rate: 9 %Current market price:…

Q: year and 6 months Interest earned at maturity (annual compounding, annual simple, semi-annual…

A: Compound interest is the concept of earning interest on both the initial amount of money invested…

Q: Use the data provided for Gotbucks Bank Inc. to answer this question. Notes to the balance sheet:…

A: Data given:Fixed-rate loans are selling at par and have five-year maturities with 12 percent…

Q: his project will require $14 million initial investment and is expected to generate volatile cash…

A: debt beta is 0.6 the market value of equity of the company is 4.8 billionthe equity beta is 1.75the…

Q: A 9-year bond has a yield of 14% and a duration of 8.157 years. If the market yield changes by 85…

A: The duration of bond show how much bond is sensitive to the interest rate that means how much prices…

Q: Aziz and Bo are planning a big graduation party for their friends in exactly four years. They decide…

A: Here,APR on Investment in 3%Fund Required is $10,000Time Period of Investment is 4 yearsCompounding…

Q: Suppose you have the following investment opportunity for Six years: Interest rate per year: 11%…

A: Interest is the return on the investment. Compound interest refers to interest that compounds in…

Q: Required: a. What is the net present value of the proposed mining project? b. Should the project be…

A: We can build the operating cash flow using the logic as below:Year 0 = cost of new equipment and…

Q: Red Lizard Construction just borrowed $53,600.00. The terms of loan payment is $600.00, then what is…

A: When the lender lends a loan to the borrower, he charges a rate of interest on the borrowed amount.…

Q: Rank the following bonds in order from lowest credit risk to highest risk all with the same time to…

A: The yield to maturity of a bond is the return on a bond. Higher the yield, higher will be the…

Q: .r.w.a.n. .F.o.o.t.w.e.a.r. .w.i.s.h.e.s. .t.o. .a.s.s.e.s.s. .t.h.e.. .v.a.l.u.e. .o.f. .i.t.s.…

A: The value of the company can be found out as present value of free cash flow of the company and…

Q: A company has a policy of requiring a rate of return on investment of 18%. Two investment…

Q: Your client is 32 years old. She wants to begin saving for retirement, with the first payment to…

A: Here,ParticularsIf the retirement age is 65If the retirement age is 70Annual deposits (PMT) $…

Q: Warehouse Year Operating Income 1 $ 61,400 2 51,400 36,400 26,400 (3,600) $172,000 3 4 5 Total Year…

A: Capital budgeting refers to the process of evaluating and selecting long-term investment projects or…

Q: M11-8 (Algo) Calculating Net Present Value, Predicting Internal Rate of Return [LO 11-3, 11-4]…

A: NPV is also known as Net Present Value. It is a capital budgeting techniques which help in decision…

Q: Compute the present value of a $2,000 deposit in year 1, and another $2,500 deposit at the end of…

A: Present value is the estimation of the current value of future cash value which is likely to be…

Q: Tyrone Company wants to purchase a property that costs $150,000. The full amount needed to finance…

A: Present Value = $150,000Interest rate = r = 12%Time = t = 6 years

Q: A grocery store sells for $346,500 and a 5% down payment is made. A 15-year mortgage at 4% is…

A: Mortgage Value is the amount on which amortizing payment is computed. It is calculated by reducing…

Q: Discount loan. Up-Front Bank uses discount loans for all its customers who want one-year loans.…

A: The discount loan refers to a loan where the amount to be repaid is fixed and the amount provided to…

Q: If 1) the expected return for Belmont Bagels stock is 8.31 percent; 2) the dividend is expected to…

A: The current stock price is the discounted value of future cash flows from the stock. This includes…

Q: vidend stock's price is 51. Call option delta is 0.5. Stock volatility is 0.2.By using BS model, the…

A: BS model provides the relation between the premium on option and other parameters such as risk free…

Q: The common shares of Twitter, Incorporated (TWTR) recently traded on the NYSE for $97 per share. You…

A: An option refers to a derivative instrument that provides the option holder the choice of…

Q: On January 1 Harmon Corp had 100,000 common shares outstanding. On February 1 Harmon Corp issued…

A: The weighted average outstanding shares refer to the time-weighted number of shares that the company…

Q: You wish to retire after 22 years; at which time you want to have accumulated enough money to…

Q: A trader focuses principally on the Australian Dollar/Singapore Dollar (A$/S$) cross-rate. The…

A: An option refers to a derivative instrument that gives its holder the choice of buying/selling the…

Q: Question 5 Given the returns over the 1988-2013 period, what has been the standard deviation of…

A: The standard deviation is a risk analysis tool that is used to determine the risk or volatility in a…

Q: Suppose that you are planning to buy a boat in in 28 years [cell B3] for $100,000 [cell B2], and you…

A: Period = 28 yearsBuying cost = $100,000Amount deposited = $26,000

Q: Jonny donates 10% of his money to charity. Which expression shows how much money he donates?

A: An expression is a statement which is an arithmetic operations between numbers and variables.

Q: Describe and discuss how correspondent banks help fight Money Laundering, Terrorism Financing and/or…

A: Introduction:Correspondent banks-These refers to financial institutions that acts as an agent to…

Q: The table. shows the dividend per share paid in 2007 and 2017 for three companies. For each company,…

A: When the company receives profits and distributes them among the shareholders. That share of profit…

Q: A 10-year bond, with a par value equaling $1,000, pays 7% annually. If similar bonds are currently…

A: Bond period = 10 yearsPar value = $1000Coupon rate = 7%Yield = 6%

Q: please post cell reference

A: First, I'm going to list the formulas and then solve them in excel. We can determine the expected…

Q: A home buyer signed a 20-year, 8% mortgage for $72,500. Payments of the mortgage should be made…

A: This can be solved using the present value of an annuity concept.Annuity is…

Q: Assume that the rate on a 1-year bond is now 6%, but all investors expect 1-year rates to be 7% one…

A: The pure expectations theory, also known as the unbiased expectations theory, is a theory in finance…

Q: The U.S. financial system is composed of (1) policy makers, (2) a monetary system, (3) fi nancial…

A: A financial system in the economy has different participants or components who work in the financial…

Q: As a financial analyst at JPMorgan Chase, you are analyzing the impact of debt on the value of the…

A: Current Value of company = $300 millionTax rate = t = 20%

Q: Calculate/estimate the IRR(s) for a 6-year project with the following cash flows: CF0 = -50, CF1 =…

A: The IRR of a project refers to the maximum return for which the project remains profitable. It uses…

Q: Montedosa Corporation has 400,000 shares of common stock outstanding, a P/E ratio of 8, and P500,000…

A: Spliting of share is that under which board of the director will increase or decrease the no. share…

Q: If you invest $2,700 today at an interest rate of 3.83 percent, compounded daily, how much money…

A: Future value refers to the value of current asset at future date with principal amount and…

Q: Complete this assignment using Microsoft Excel and submit it below. Please submit it as a single…

A: Capital Budgeting is a decision making technique for the financial analysis in which projects are…

Q: Assume that the price of a forward contract is 127.87. The European options on the forward contract…

A: Shares are the securities issued by the companies to arrange the funds. Prices of the shares…

Q: Frosty, Inc. presently has an outstanding 5 percent, $1,000 convertible bond. The bond can be…

A: A bond refers to a debt instrument through which the government and companies raise funds from the…

Q: Financing Assume that you live in the blissful world of perfect capital markets: there are no…

A: With perfect capital market and without tax, the value of levered firm (VL) is equal to the value of…

Q: The VaR on a Portfolio with a one-day time horizon is £100 million. What is the VaR using a ten-day…

A: The Value at Risk (VaR) of a portfolio refers to the measure of the risk of loss that the portfolio…

Q: Floopy Co has decided to purchase new equipment. They are in the 38% tax bracket. The desired…

A: ParticularsAmountEquipment cost 77,000Interest12%Tax rate38%Loan payments…

Q: [The following information applies to the questions displayed below] Data for Hermann Corporation…

A: The net operating income refers to the measure of the profitability of the company before any costs…

Q: Shoobee, Inc. has asked its financial manager to measure the cost of each specific type of capital…

A: Here,ParticularsValuesAfter-tax cost of debt:Tax rate25.00%Current price of bonds980.00Face value of…

Q: Consider a student loan of $22,500 at a fixed APR of 12% for 30 years. a. Calculate the monthly…

Q: Which option yields a higher return? Option A: $50 in 6 months and $50 in 12 months, assuming a…

A: Here,Option A:$50 in 6 Months (n1)$50 in 12 months (n2)Interest Rate (r) is 3%Compounding Period (m)…

Concept explainers

Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.

Question

TIPS A TIPS bond with a $1,000 par value was issued three years ago with a coupon rate
of 9%. In the first year inflation was 6%, in the second year 6.5% and in the third year 7%.
The coupon payment at the end of the third year would be

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction of TIPS bond

VIEW

Step 2: Calculation of the amount of coupon payment in third year

VIEW

Solution

VIEW

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Bond Valuation with Semiannual Payments Renfro Rentals has issued bonds that have a 10% coupon rate, payable semiannually. The bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds?
Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the market rate was 6%. Interest was paid semi-annually. Calculate and explain the timing of the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. Would an investor be willing to pay more or less than face value for this bond?
A newly issued 20-year maturity, zero-coupon bond is issued with a yield to maturity of 5.6% and face value $1,000. Find the imputed interest income in (a) the first year; (b) the second year; and (c) the last year of the bond's life. Assume annual coupon payments. Note: Round your answers to 2 decimal places. First year Second year Last year Imputed Interest
One year before maturity the price of a bond with a principal amount of $1,000 and a coupon 29. rate of 5% paid annually fell to $968. The one year interest rate: rose to 7.0%. A. rose to 8.5%. В.
A company's bond with a face value of $1,000 currently sells for $1,056.17. The bond matures in 8 years. The discount rate for the bond is 9%. What is the coupon rate of the bond if coupons are paid semiannually?
A ten-year, inflation-indexed bond has a par value of $10,000 and a coupon rate of 5 percent. During the first six months since the bond was issued, the inflation rate was 2 percent. Based on this information, the annual coupon payment after six months will be $.___._. 250 255 500 510
2. A 10-year, P20,000 bond was issued at a nominal interest rate of 8% with semiannual compounding. Just after the fourth interest payment, the bond will be sold. Assume that an effective interest rate of 10 % % will apply, and calculate the price of the bond.
A $3,500,000 issue of a 30-year bond, redeemable at par, offers 9.00% coupons payable semi-annually. The bond yields 5.50% compounded monthly. a. What was the purchase price of the bond, if it was purchased 15 years before maturity? Round to the nearest cent b. What was the amount of discount or premium on the bond? amount is
A $25,000 Government of Canada bond was issued with a 25-year maturity and a coupon rate of 8.92% compounded semiannually. Two-and-a-half years later the bond is being sold when market rates have increased to 9.46 % compounded semiannually . Determine the selling price of the bond along with the amount of premium or discount .
A newly issued 10-year, $1,000, zero coupon bond just sold for $311.05. What is the implicit interest, in dollars, for the first year of the bond's life? Assume semiannual compounding. Please show how this can be set up in Excel, thank you.
Tom Cruise Lines Incorporated issued bonds five years ago at $1,000 per bond. These bonds had a 30-year life when issued and the annual interest payment was then 14 percent. This return was in line with the required returns by bondholders at that point as described below: Real rate of return Inflation premium Risk premium Total return 3% 6 5 14% Assume that five years later the inflation premium is only 3 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds have 25 years remaining until maturity. Compute the new price of the bond. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Note: Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual. New price of the bond
One year ago, an annual coupon bond was issued by Company X with maturity period of 10 years at coupon rate of 8%. Face value of the bond is $1,000. The interest rate of similar kind of bonds in the market is 9.00%. What is the current price of the bond? a) $935.82 b) $1,000 c) $940.05 d) $949.67