(Yield-To-Maturity) for $990. You have just bought a 5% coupon $1,000 face-value bond with 3 years until maturity (a) Construct the timeline that represents the discounted cash flow. (b) Write down the equation that would calculate the yield-to-maturity. Use Excel to solve for the yield-to-maturity. What is the formula you would write to solve for the yield-to-maturity? Report your answer. (d) You have held this bond for one year and earned the first coupon interest. Unfortunately, you have to sell this bond for $1,000 to Firm A at the end of this one-year period. Calculate the actual return. What is the yield-to-maturity for Firm A who bought the bond from you in (d)? Explain your answer. (Hint: The answer is an exact percentage, virtually no calculation needed.) (e) Firm A then immediately sells this bond to Firm B for $1,100. What is the yield-to-maturity for Firm B? Explain your answer. (Hint: The answer is an exact percentage, virtually no calculation needed.)

(Yield-To-Maturity) for $990. You have just bought a 5% coupon $1,000 face-value bond with 3 years until maturity (a) Construct the timeline that represents the discounted cash flow. (b) Write down the equation that would calculate the yield-to-maturity. Use Excel to solve for the yield-to-maturity. What is the formula you would write to solve for the yield-to-maturity? Report your answer. (d) You have held this bond for one year and earned the first coupon interest. Unfortunately, you have to sell this bond for $1,000 to Firm A at the end of this one-year period. Calculate the actual return. What is the yield-to-maturity for Firm A who bought the bond from you in (d)? Explain your answer. (Hint: The answer is an exact percentage, virtually no calculation needed.) (e) Firm A then immediately sells this bond to Firm B for $1,100. What is the yield-to-maturity for Firm B? Explain your answer. (Hint: The answer is an exact percentage, virtually no calculation needed.)

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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Hi, just need help with part e and f, thank you!
Use of a financial calculator or Excel (functions PRICE and YIELD will be helpful) will be helpful to calculate the following problems. Show your work, include your calculator entries (i.e. N, PV, PMT, FV, IM, and/or Excel formulas where applicable. 1. Suppose there is a bond with a par value of $1,000 that matures in 6 years. Coupon payments are made annually. The coupon rate is 9%. It has a 12% yield to maturity. The annual coupon payments = $ b. The price of the bond today (present value) = $
a. Consider a hypothetical scenario where you have a default-free floating rate bond and a corporate floating rate bond with maturities of 5 years. The current default- free floating rate is 4% and the corporate floating rate is 6%. While the rates are quoted annually, both bonds pay coupons semi-annually. The face value of both bonds is $100. Describe step-by-step how you would set up the positions (long and short) to mimic the cash flows of a credit default swap. What would be the CDS rate? b. Assume the "loss given default” is $40 in the problem above. Suppose the loss given default changes and becomes $60. How would the CDS rate change given the increase in "loss given default." c. Suppose the probability of default before 5 years is 2% in the above problem. Now imagine that the probability of default falls to 1%. How would the CDS rate change?
1 ) Solve the following quesitons in an Excels spreadsheet, and create a cash-flow table for each Bond A and Bond B over 6 years. a) Calculate the yield rates for two bonds described below. b) Correctly use Rate of Return (ROR) analysis to determine which, if either, bond an investor with a MARR of 10%, should purchase. c) Confirm your answer to part (b) using Present Worth Analysis. Type out formulas used and calculations performed. d) Confirm your answer to part (b) using Annual Worth Analysis. Type out formulas used and calculations performed.
1. Pricing a bond in the secondary market: For each question, use the three methods we learned in class: plug in the values in the formula, handwrite the keys you enter in the Financial Calculator, and use Excel (formula and arguments). Use the Table below for each answer. a. Find the price of a 10-year 10% coupon (paid semiannually). The current yield to maturity is 5%. b. Find the price of a 10-year 5 % coupon (paid semiannually). The current yield to maturity is 10%. c. Based on your answers, discuss the relationship between coupon rate, yield to maturity, and bond price. FORMULA (Plug in the corresponding values in the formula below) 2 Financial Calculator (Indicate the keys you enter and write the answer) 3 Excel (Write the function and arguments in Excel)
Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 5 Show Transcribed Text B) How could you construct a 1-year forward loan beginning in year 3? (Face Value) C) How could you construct a 1-year forward loan beginning in year 4? (Face Value) Required A Required B Complete this question by entering your answers in the tabs below. Face value Rate of synthetic loan → Show Transcribed Text Price $ 970.93 898.39 836.92 How could you construct a 1-year forward loan beginning in year 3? Note: Round your Rate of synthetic loan answer to 2 decimal places. Required A 776.20 685.42 Required B Face value Rate of synthetic loan Required C 7.85 % Required C How could you construct a 1-year forward loan beginning in year 4? Note: Round your Rate of synthetic loan answer to 2 decimal places. Ċ 13.29 %
This is the entire question! Just answer A,B,C (Don't worry about the numbers for A&B) and answer the rest of the question. Complete the following table by identifying the appropriate corresponding variables used in the equation. Unknown Variable Name A (Bond Semi coupon annul payment, annual coupon payment,Bonds market price) B (Bond's semi coupon, annual coupon payment,par value) $1,000 C Semiannual required return Based on this equation and the data, it is (unreasonable,reasonal) to expect that Oliver’s potential bond investment is currently exhibiting an intrinsic value less than $1,000. Now, consider the situation in which Oliver wants to earn a return of 6.75%, but the bond being considered for purchase offers a coupon rate of 8.75%. Again, assume that the bond pays semiannual interest payments and has three years to maturity. If you round the bond’s intrinsic value to the nearest whole dollar, then its intrinsic value…
Find the price of the bond. Solve the question without using Excel and provide the necessary calculations.
If you have a coupon bond, its face value is $1,000 and the coupon rate is 4%. Complete the following table, then calculate the rate of return for the bond. If you know that it was purchased at the nominal value, comment on the results. due date return at maturity the price 2 0.02 3 0.04 5 0.06 Present Value Annuity value % n value % n 0.961 0.02 2 1.97 0.02 2 0.925 0.04 2 1.89 0.04 2 0.889 0.04 3 2.78 0.04 3 0.906 0.02 5 4.71 0.02 5 0.747 0.06 5 4.21 0.06 5
Exercise 1. (Do this problem by hand. Don't just put it in a program like Excel. I want to see your work.) Bond A is a three year zero coupon bond with par value of $1000 and price of $900. Bond B is a two year 7% coupon bond with par value of $1000 and price of $1000. • Compute the yield to maturity of each. Is the yield curve upward or downward sloping? • Compute the implied forward rate. • Compute the duration of each. • Compute the convexity of each.
Suppose that a bond with an 8% coupon rate and semiannual coupons has a face value of $1,000, 10 years to maturity. The required rate (Yield to Maturity, YTM) is 5%. Draw a timeline to identify the amount and timing of cash flows obtained with the bond and calculate the bond value. Redo part (a) if YTM is 10%. Next, use the results of parts (a) and (b) to show the relationship among YTM, coupon rate and bond value.
Consider a bond with maturity 2 year, 100 face value, coupon 3.60%, and yield 7.20%. Compute a dollar duration numerically using a dy =0.001%, Report you result with two digits decimal accuracy and the correct sign. Example:-185.95 Blank Excel Worksheet Your Answer: Answer

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