Treasury bond issued by U.S. government has 7 years of maturity. Coupon rate is 6% paid annually, Face value is $1000 and yield to maturity (Kd) equals 5%. 1. What is the price of bond (VB)? Find the discount or premium amount? 2. Calculate the current yield and expected capital gain yield? 3. If the discount rate is expected to raise up to 8%. What is the bond current market price (VB)?

Treasury bond issued by U.S. government has 7 years of maturity. Coupon rate is 6% paid annually, Face value is $1000 and yield to maturity (Kd) equals 5%. 1. What is the price of bond (VB)? Find the discount or premium amount? 2. Calculate the current yield and expected capital gain yield? 3. If the discount rate is expected to raise up to 8%. What is the bond current market price (VB)?

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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Calculate the value of a R1,000 bond which has 10 years until maturity and pays quarterly interest at an annual coupon rate of 12 percent. The required return on similar-risk bonds is 20 percent. What is the correct answer A. R656.77 B. R835.45 C. R845.66 D. R2,201.08
A. Calculate the yield spread of the following floating rate bond: • Annual coupon rate = reference rate + 200 basis points• initial reference rate (annual) = 4%• The bond has a 10-year of term to maturity• Assume the bond’s par value = USD1000• The price of the bond = USD1,032.84 B. Suppose the new reference rate is decreased to 3% two years after the bond is issued. What is the price of the bond then?
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