You invest $200 in a newly listed corporate bond. The promised payback on this bond in 2 years'time is $220. You estimate that there is a 2% probability that the company will default on the bondwith a recovery of 10% of the promised amount. There is also an 8% probability that the companywill default on the bond and you will be able to recover 70% of the promised amount. With 90%probability, the company will not default and repay the bond in full. What is the 90%-VaR on thisbond?$154O $220O $0$66None of the other answers are correct. An oil refiner can refine crude oil to produce jetfuel. The production plans of the refiner involveacquiring crude at the start of February 2021 and selling jet fuel at the end of February. The refinercan hedge the associated cash flows byO shorting crude oil futures contracts that mature at the end of January 2021 and shorting jetfuel futurescontracts that mature at the end of February 2021.O shorting crude oil futures contracts that mature at the end of January 2021 and buying jetfuel futurescontracts that mature at the end of February 2021.O going long in crude oil futures contracts that mature at the end of January 2021 and buying jetfuel futurescontracts that mature at the end of February 2021.O shorting jetfuel fuel futures contracts that mature at the end of January 2021 and buying crude oil futurescontracts that mature at the end of February 2021.O buying crude oil futures contracts that mature at the end of January 2021 and shorting jetfuel futurescontracts that mature at the end of February 2021.

Value at Risk(VAR)- It measures the maximum loss a portfolio of investments can incur given normal…

You invest $200 in a newly listed corporate bond. The promised payback on this bond in 2 years' time is $220. You estimate that there is a 2% probability that the company will default on the'bond with a recovery of 10% of the promised amount. There is also an 8% probability that the company will default on the bond and you will be able to recover 70% of the promised amount. With 90% probability, the company will not default and repay the bond in full. What is the 90%-VaR on this bond? O $154 O $220 O SO

You invest $200 in a newly listed corporate bond. The promised payback on this bond in 2 years' time is $220. You estimate that there is a 2% probability that the company will default on the'bond with a recovery of 10% of the promised amount. There is also an 8% probability that the company will default on the bond and you will be able to recover 70% of the promised amount. With 90% probability, the company will not default and repay the bond in full. What is the 90%-VaR on this bond? O $154 O $220 O SO

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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You just bought a newly issued bond which has a face value of $1,000 and pays its coupon once annually. Its coupon rate is 6%, maturity is 20 years and the yield to maturity for the bond is currently 8%. Suppose that one year after you bought the bond, the yield to maturity of the bond declines to 7%. Find the (before-tax) total dollar return (dollar returns from the coupon payment and capital gains) for the one-year investment period.
KroBank issues a zero coupon bond and it has to pay the face value of the bond of $100 M due in exactly five years. Assuming interest rates are currently at 8% p.a., which of the following is the best investment option for the bank to ensure it has enough funds to meet the liability in five years: Invest $100M today in coupon-paying bonds paying 8% p.a. annual coupons with maturity of 7 years (duration is 5.62 years), sell the bonds in year 5. Invest $100M today in coupon-paying bonds paying 8% p.a. annual coupons with maturity of 6 years (duration is 4.99 years), sell the bonds in year 5. Invest $100 M today in coupon-paying bonds paying 8% p.a. annual coupons with maturity of 5 years (duration is 4.31 years). Invest $100 M today in coupon-paying bonds paying 8% p.a. annual coupons with maturity of 8 years (duration is 6.21 years), sell the bonds in year 5.
Many companies look to re-finance their outstanding debt when interest rates fall significantly. Javert Toy Company has $50.00 million in debt outstanding that pays an 8.75% APR coupon. The debt has an average maturity of 10.00 years. The firm can refinance at an annual rate of 5.25%. That is, investors want 5.25% today for bonds of similar risk and maturity. How much will Javert save on interest payments with this re-finance? You can assume that Javert will issue debt to cover the full price of repurchasing the old debt from part A. (answer in terms of millions, so 1,000,000 would be 1.00) Submit Answer format: Currency: Round to: 4 decimal places.
Your company wants to pay off some long-term debt, so you decide to buy back some conventional 10-year bonds that you issued 8 years ago. The par value of the bonds is $1200, and the bonds were issued at a 5% coupon rate. Currently, other companies with the same risk profile as your company are offering new 2-year bonds at an interest rate of 8%. Assume that you are at the start of year 9, i.e., the 8th interest payment has been made. What is a fair offer to buy back the bonds? Answer:
Today you buy ten zero-coupon bonds which will mature in exactly 5 years. Each of these ten bonds has a face value of $100. The price you pay today for each of these bonds is $82. Assume a year goes by. Now there are only 4 years left before these bonds mature. You sell these bonds in the market for $75 per bond. What is the return you have realized on your investment in these bonds? -7.00% -9.26% -8.54% We do not have sufficient information about interest rates to calculate this answer. -9.33%
You have some money to invest and you are considering purchasing unsecured notes which are a bond-type instrument that have been issued by JoJo Inc. The notes has $1,000 par value, mature in five years and have coupon rate of 10.75%, with coupon paid annually. What price(value) would you be prepared to pay for the notes if your alternative is to invest in your friends company who will guarantee you a 10% pa return?
You are considering two bonds, AMD and BBS. Both bonds are selling at par and pay the same amount of interest of $120 annually. Bond AMD will mature in 5 years while bond BBS will mature in 6 years. If the YTM on these two bonds increases by 1%, what do you expect to happen to their bond prices? • A. Both bond prices will increase, but BBS will increase more than AMD. • B. Both bond prices will decrease, but BBS will decrease more than AMD. • C. Both bond prices will increaks, but AMD will increase more than BBS. D. Both bond prices will decrease, but AMD will decrease more than BBS. You observe the current yield curve as follows: r0.5=4%, r1=4.2%, r1.5=4.3%, and Г2=4.1%. What is the price of a T-note which has a coupon rate of 4%, 2 years to maturity, and $1,000 par? • A. $1,064.69 • B. $998.03 • C. $992.52 • D. $988.87 The interest rates on 3- and 2-year Treasuries are 2.35% and 2.20%, respectively. If you estimate that the 1-year expected spot rate in year 3 is 2.53%, what is…
You have just purchased a 10-year bond with a 6.375% coupon rate, coupons paid annually, with a YTM of 8%. Face value is $1000. Moments after you purchase this bond, the Federal Reserve Open Markets Committee announces that they will cut interest rates by 1%. By what percentage will your bond increase in value? Since this is basically an instantaneous change, assume that NPER = 10 in all y ****NOTE 7.18 is INCORRECT -- redoing this with HPR formula, i get 15.44, is this correct? **** I your calculations.
Please show the complete and correct solution. Thank you
please help solve
Please answer number 1 and 2.
A bond costs $925, with a face value of $1000 and pays 4% of the face value each year. If the bond will be paid off at the end of 10 years and your MARR is 5%, should you buy the bond? Please solve using NPV method if possible, and please do without excel or calculators since I'm trying yo understand the topic . Thank you!

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