You believe that stocks are overvalued so you elect to add bonds to your retirement plan to reduce future potential downside price risk. With cash you've received from the sale of equities, you target two bonds for purchase. What is the fair market value for each of these bonds if the YTM for both is 6.75%? First bond: What is the price of an 8-year 4.95% coupon bond with $1,000 face value paying coupons semiannually? $944.28 $908.15 $890.12 $1,117.72 $875.36

You believe that stocks are overvalued so you elect to add bonds to your retirement plan to reduce future potential downside price risk. With cash you've received from the sale of equities, you target two bonds for purchase. What is the fair market value for each of these bonds if the YTM for both is 6.75%? First bond: What is the price of an 8-year 4.95% coupon bond with $1,000 face value paying coupons semiannually? $944.28 $908.15 $890.12 $1,117.72 $875.36

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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Suppose that you invested in a twenty-year zero coupon bond with a face value of $1000. The bond originally cost $543. It is now 4 years later. Suppose that today (four years later) comparable bonds are yielding 4.5%, if you sold the bond today, would you have a capital gain or loss? A. Capital Gain >$120 B. Capital Loss >$120 C. Capital Gain <$120 D. Capital Loss<$120 E. No Gain or Loss
please help with the FV value that i got wrong
please help with the fv value that i got wrong
Suppose an investor owns a 30-year Apple bond that is non callable. The coupon is 4% and the price is 125. There is a similar Apple bond (30 year maturity and 4% coupon) that is callable in 5 years. That bond is priced at 105. What does that say about the value of the call. There is also a similar Apple bond that is puttable in 5 years. Describe a rough range for this bond price, with your rationale.
PICK ONE: Explain why YOU: Suppose that 6 months after you purchase the bond, the market rate for interest on this type of bond falls to 7.00%. This will cause the (coupon / market price / par value) to (fall / rise). From the issuer’s perspective, the lower interest rate means that he or she would be (worse / better) off issuing new bonds at this lower rate than continuing to pay you 9%.
A treasury bond with $100 maturity face value has a $9 annual coupon, and 15 years left to maturity. What price will the bond sell for assuming that the 15 year yield to maturity in the market is 4%, 9%, and 14% respectively. (Show working out, without the use of external software such as excel or stata) Explain whether the price movements would have been greater or smaller if a 10 year bond had been used rather than a 15 year one without any further calculations.
Please show work You want to purchase a bond that will pay you $300 per year for the next four years. If the annual interest rate is 4%, then what is the price of your bond if the market is in equilibrium? You buy a stock that is expected to pay a dividend of $300 per year for the next four years. If the discount rate is 5.5%, then what is the stock price in this case? Is this result the one you would expect when comparing this answer to the one you obtained in question 3? Why or why not?
Nikul
You are considering investing in a 20% coupon rate bond with the annual coupons, a three-year majority and a face value of $1000. You observe the following prices for discount or zero - coupon bonds with face value of $100 (STRIPS): Time to maturity 1 year 2 Years 3 Years Price 96.71 92.21 84.47 (a) What is the fair market price of the bond? (b) What is the yield to maturity of the bond? (c) What is the yield to maturity on the one-year STRIP? (d) What is the yield to maturity on the two-year STRIP? (e) What is the yield to maturity on the three-year STRIP? (f) What does the market expect the 1 year to be in 1 year from now? (g) What does the market expect the 1 year to be in 2 years from now? (h) What does the market expect the 2 years to be in 1 year from now?
You are considering investing in a 20% coupon rate bond with the annual coupons, a three-year majority and a face value of $1000. You observe the following prices for discount or zero - coupon bonds with face value of $100 (STRIPS): Time to maturity 1 year 2 Years 3 Years Price 96.71 92.21 84.47 (a) What is the fair market price of the bond? (b) What is the yield to maturity of the bond? (c) What is the yield to maturity on the one year STRIP? (d) What is the yield to maturity on the two-year STRIP? (e) What is the yield to maturity on the three year STRIP? (f) What does the market expect the 1 year to be in 1 year from now? (g) What does the market expect the 1 year to be in 2 years from now? (h) What does the market expect the 2 years to be in 1 year from now?
The Isabelle Corporation rents prom dresses in its stores across the southern United States. It has just issued a five-year, zero-coupon corporate bond at a price of $62 (assume a $100 face value bond). You have purchased this bond and intend to hold it until maturity. a. What is the yield to maturity of the bond? b. What is the expected return on your investment (expressed as an EAR) if there is no chance of default? c. What is the expected return (expressed as an EAR) if there is a 100% probability of default and you will recover 90% of the face value? d. What is the expected return (expressed as an EAR) if the probability of default is 50% in good times, the likelihood of default is higher in bad times than good times, and, in the case of default, you will recover 90% of the face value? e. For parts (b) through (d), what can you say about the five-year, risk-free interest rate in each case? Note: Assume annual compounding. C a. What is the yield to maturity of the bond? The yield to…
Fixed Income Securities4. Today is t = 0. You have just bought a five-year zero-coupon Treasurybond with $100 face value. You paid $80.(a) What is the annually compounded yield to maturity on the bond?(b) Suppose that yields at all maturities decrease to 2% immediately after you havepurchased the bond. Calculate the annualized holding period return if you sellthe bond one year after you have purchased it, at t = 1.(c) What is the annually compounded yield to maturity on the bond at t = 1?

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