X Katle Pairy Fruits Incorporated has a $2,400 16-year bond outstanding with a nominal yield of 17 percent (coupon equals 17% × $2,400 = $408 per year). Assume that the current market required interest rate on similar bonds is now only 12 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the current price of the bond. Note: Do not round Intermediate calculations. Round your final answer to 2 decimal places. Assume Interest payments are annual. Current price of the bond b. Find the present value of 5 percent × $2,400 (or $120) for 16 years at 12 percent. The $120 is assumed to be an annual payment. Add this value to $2,400. Note: Do not round Intermediate calculations. Round your final answer to 2 decimal places. Assume Interest payments are annual.

X Katle Pairy Fruits Incorporated has a $2,400 16-year bond outstanding with a nominal yield of 17 percent (coupon equals 17% × $2,400 = $408 per year). Assume that the current market required interest rate on similar bonds is now only 12 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Compute the current price of the bond. Note: Do not round Intermediate calculations. Round your final answer to 2 decimal places. Assume Interest payments are annual. Current price of the bond b. Find the present value of 5 percent × $2,400 (or $120) for 16 years at 12 percent. The $120 is assumed to be an annual payment. Add this value to $2,400. Note: Do not round Intermediate calculations. Round your final answer to 2 decimal places. Assume Interest payments are annual.

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 purchase price of the following bonds. Indicate whether the bonds are priced at a discount, at par or at a premium. Give your answers in dollars and cents to the nearest cent. Face Value Coupon Rate Years to Maturity Market Rate a) $100 r = 6.75% 5 j2 = 6.75% b) $1,000 r = 8% 11 j2 = 6.25% c) $10,000 r = 7% 20 j2 = 8.75% Quoted coupon rates and market rates are nominal annual rates compounded semi-annually. a)Price = $ This bond is priced at:a discountpara premium b)Price = $ This bond is priced at:a discountpara premium c)Price = $ This bond is priced at:a discountpara premium
Conceptual Overview: Explore the value of fixed-interest coupon bonds of different terms. This graph shows the value of 10% coupon bonds of different terms across differing market interest rates. Each bond pays INT = $100 at the end of each year and returns M = $1,000 at maturity. For comparison, the blue line depicts the value of a one-year bond. The term of the other bond in years may be changed using the slider. Drag on the graph to change the current market interest rate (rd) at which the bond (orange curve) is evaluated. ∑ t = 1 Y r s I N T ( 1 + r d ) + M ( 1 + r d ) = ∑ t = 1 1 5 $ 1 0 0 ( 1 + 0 . 1 0 0 ) + $ 1 0 0 0 ( 1 + 0 . 1 0 0 ) = 1 , 0 0 0 ∑ t=1 Yrs (1+r d ) t INT + (1+r d ) Yrs M =∑ t=1 15 (1+0.100) t $100 + (1+0.100) 15 $1000 =1,000 ∑t=1Yrs(1+rd)tINT+(1+rd)YrsM=∑t=115(1+0.000)t$100+(1+0.000)15$1000=2,500. 1. What is the value of a 15-year 10% $1,000 coupon bond when the market interest rate is 15%? $421$708$1,000$1,5192. What is the value of a 12-year 10% $1,000…
Exploring Finance: Coupon Bonds. Coupon Bonds Conceptual Overview: Explore the value of fixed-interest coupon bonds of different terms. This graph shows the value of 10% coupon bonds of different terms across differing market interest rates. Each bond pays INT = $100 at the end of each year and returns M = $1,000 at maturity. For comparison, the blue line depicts the value of a one-year bond. The term of the other bond in years may be changed using the slider. Drag on the graph to change the current market interest rate (rd) at which the bond (orange curve) is evaluated. 5. For a 10%, $1,000 coupon bond, a longer term bond (say, 15 years) is: less affected by changes in the market rate than a 1-year bond. affected the same by changes in the market rate than a 1-year bond. more affected by changes in the market rate than a 1-year bond. Cannot be determined.
i. Calculate the value of Macaulay’s duration for a 10-year, $1000 par value bond purchased today at a yield to maturity of 14% and a coupon rate of 10%. ii. From the answer in (i) calculate the modified duration of the bond assuming the prevailing interest rate is still 14%.iii. Now suppose the market interest rate on comparable bonds falls to 13 percent. What will be the approximate percentage change in the bond price.? (Hint: use the modified duration for your computation in (ii))
2. Finding the Yield to Maturity (I/Y) of bonds in the secondary market. Plug in the values in the formula, write the keys you enter in the Financial Calculator, and use Excel (formula and arguments). Use the Table below for each answer. a. A bond is currently traded at $850 in the secondary market. It matures in 7 years and has a coupon rate of 3%, paid semi-annually. Find the YTM (I/Y in the calculator) i. Is this a discount or premium bond? ii. Is YTM more or less than the Coupon Rate? iii. How are your previous two answers related? Explain. b. A bond is currently traded at $1350 in the secondary market. It matures in 7 years and has a coupon rate of 9%, paid semi-annually. (I/Y in the calculator) i. Is this a discount or premium bond? ii. Is YTM more or less than the Coupon Rate? iii. How are your previous two answers related? Explain. c. Describe the relationship between the YTM, the coupon rate, and the bond price.
Give only typing answer with explanation and conclusion
Please answer all questions with explanations thx.
Consider a bond with a current value of $928.01. It is a 10-year, $1,000 bond, coupons paid semi-annually, and has a 7% coupon rate. a. The bond's yield to maturity (YTM) is: b. What will be its value (per $1,000 of face) if its YTM changes to 10%? Question content area bottom Part 1 a. The YTM is enter your response here%. (Round to two decimal places.) b. Value (per $1,000 of face): $enter your response here. (Round to the nearest cent.)
1
7. Given the two bonds below, answer the following questions. Bond Bond A Coupon Rate B 5% Par/Face/Princ $1000 Years to Maturity 2 5% $1000 a. If the Yield to maturity of the two bonds is 5%, what is the price of both bonds. b. Find the Modified Duration of both bonds. c. Find the Modified Convexity of both bonds. d. Estimate the price of bond B using the Tayor Series Expansion if interest rates rise to 6% for the Yield to Maturity. 3
Qc 2.
Need help with C Approximate yield to maturity An investor must choose between two bonds: Bond A pays $90 annual interest and has a market value of $815. It has 15 years to maturity. Bond B pays $81 annual interest and has a market value of $700. It has eight years to maturity. Assume the par value of the bonds is $1,000. a. Compute the current yield on both bonds. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.) Current Yield Bond A11.04% Bond B11.57% c. A drawback of current yield is that it does not consider the total life of the bond. For example, the approximate yield to maturity on Bond A is 11.51 percent. What is the approximate yield to maturity on Bond B? The exact yield to maturity? (Use the approximation formula to compute the approximate yield to maturity and use the calculator method to compute the exact yield to maturity. Do not round intermediate calculations. Input your answers as a percent rounded to 2…

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