2. Price of a Risky Callable BondUS Treasury Strips BVAL Cur97) Actions98 Table99) Settings-PCS BVALGraph CurvesX-AxisTenorY-Axis YieldCurrencyLower Chart TableSpecific mm/dd/yyRelativeLast1D1W1M ModifyCurves & Relative Value• BIS65 US Treasury Strips BVAL Curve Last (Bid)2.50-2.00-1.50-1.00-0.50-2Y3Y4YSY6Y7YBY10Y15Y20Y25Y30YTenor3) Show Key Tenors <Curve Id3H1YZY3Y4Y5Y7YBY10Y15Y20Y25Y30Yn EI S65042804780.5811.0061.18713631670179018931.98123022.539ע 272779Tenor (yr)Spot Rate10.58%20.80%31.01%41.19%51.36%71.67%81.79%9.1.89%101.98%Yield (Bid Conventional 8) What is the price of a three-years to maturity risky bond that pays 3% annual coupon if the bond iscallable at face value (assuming a face value of $100)?What is the dollar value of the embedded call option?Note: An identical bond is currently trading with an OAS of 200 bps, and your analysis of interest ratessuggest that the proportional standard deviation of interest rates is 20%.

Bond Bond is referred to as the fixed income instrument which is used to represent a loan made by an…

What is the price of a three-years to maturity risky bond that pays 3% annual coupon if the callable at face value (assuming a face value of $100)? What is the dollar value of the embedded call option? Note: An identical bond is currently trading with an OAS of 200 bps, and your analysis of inte suggest that the proportional standard deviation of interest rates is 20%.

What is the price of a three-years to maturity risky bond that pays 3% annual coupon if the callable at face value (assuming a face value of $100)? What is the dollar value of the embedded call option? Note: An identical bond is currently trading with an OAS of 200 bps, and your analysis of inte suggest that the proportional standard deviation of interest rates is 20%.

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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Consider a coupon bond that has a par value of $1,000 and a coupon rate of 8%. The bond is currently selling for $1,008.98 and has 2 years to maturity. What is the bond's yield to maturity (YTM)? The yield to maturity is
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 9.2% annual coupon bond for $1,180. 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
You find a zero coupon bond with a par value of $10,000 and 22 years to maturity. The yield to maturity on this bond is 4.4 percent. Assume semiannual compounding periods. What is the dollar price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Bond price
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 9.5% annual coupon bond for $ 1,210. 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%
You find a zero coupon bond with a par value of $10,000 and 21 years to maturity. The yield to maturity o this bond is 4.3 percent. Assume semiannual compounding periods. What is the price of the bond?
Arco Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual payments, and a $1,000 par value. The bond has a 7.20% yield to maturity, but it can be called in 6 years at a price of $1,045. What is the bond's yield to call? Hint: Calculate the bond's price based on the YTM, and then use that price to find the YTC. Your answer should be between 4.08 and 10.64, rounded to 2 decimal places, with no special characters.
A newly issued bond with 1 year to maturity has a price of $1,000, which equals its face value. The coupon rate is 15% and the probability of default in 1 year is 35%. The bond’s payoff in default will be 65% of its face value. a. Calculate the bond’s expected return. b. Use a data table to show the expected return as a function of the recovery percentage and the price of the bond. Please show how you got part B using all functions.
Suppose a ten-year, $1,000 bond with an 8.8% coupon rate and semiannual coupons is trading for $1,034.29. a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? b. If the bond's yield to maturity changes to 9.2% APR, what will be the bond's price?
A 6.25 percent coupon bond with 15 years left to maturity is priced to offer a yield to maturity of 7.5 percent. You believe that in one year, the yield to maturity will be 7.0 percent. Assuming semiannual interest payments, what is the change in price the bond will experience in dollars? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
You find a zero coupon bond with a par value of $10,000 and 25 years to maturity. The yield to maturity on this bond is 4.7 percent. Assume semiannual compounding periods. What is the price of the bond?
Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $89.75, while a 2-year zero sells at $79.88. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 10% per year. Required: What is the yield to maturity of the 2-year zero? What is the yield to maturity of the 2-year coupon bond? What is the forward rate for the second year? If the expectations hypothesis is accepted, what are (1) the expected price of the coupon bond at the end of the first year and (2) the expected holding-period return on the coupon bond over the first year? Will the expected rate of return be higher or lower if you accept the liquidity preference hypothesis?
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 bon 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 percent for $815. The bond has 7 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., 32.1m 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., 32.1 Answer is complete but not entirely correct. 12.00 %…

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