You observe the following term structure:1-year zero-coupon bond2-year zero-coupon bond3-year zero-coupon bond4-year zero-coupon bondEffective AnnualRequired A Required BYTMRequired:a. If you believe that the term structure next year will be the same as today's, calculate the return on (1) the 1-year zero and (ii) the 4-year zero.b. Which bond provides a greater expected 1-year return?8.3%8.48.58.6Complete this question by entering your answers in the tabs below.One year return on 1-year bondOne year return on 4-year bondIfyou believe that the term structure next year will be the same as today's, calculate the return on (i) the 1-year zero and (ii)the 4-year zero.Note: Do not round intermediate calculations. Round your answers to 1 decimal place.%%

As one year bond is going to mature next year,Return on 1 year bond = Return on 1 year zero coupon…

You observe the following term structure: 1-year zero-coupon bond 2-year zero-coupon bond 3-year zero-coupon bond 4-year zero-coupon bond Effective Annual YTM 8.3% 8.4 8.5 8.6 Required: a. If you believe that the term structure next year will be the same as today's, calculate the return on (1) the 1-year zero and (ii) t year zero. b. Which bond provides a greater expected 1-year return? Required A Required B Complete this question by entering your answers in the tabs below.

You observe the following term structure: 1-year zero-coupon bond 2-year zero-coupon bond 3-year zero-coupon bond 4-year zero-coupon bond Effective Annual YTM 8.3% 8.4 8.5 8.6 Required: a. If you believe that the term structure next year will be the same as today's, calculate the return on (1) the 1-year zero and (ii) t year zero. b. Which bond provides a greater expected 1-year return? Required A Required B Complete this question by entering your answers in the tabs below.

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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The term structure for zero-coupon bonds is currently: Maturity (Years) YTM (%) 1 5.2% 2 6.2 3 7.2 Next year at this time, you expect it to be: Maturity (Years) YTM (%) 1 6.2% 2 7.2 3 8.2 Required: What do you expect the rate of return to be over the coming year on a 3-year zero-coupon bond? Under the expectations theory, what yields to maturity does the market expect to observe on 1- and 2-year zeros at the end of the year? Is the market's expectation of the return on the 3-year bond greater or less than yours?
Calculate the YTM based on the information provided and explainthe difference between the Yield to Maturity rate and the originalcoupon rate. YTM Bond Details: A bond is currently selling for $850 with 15 years until it matures.The bond has a current coupon rate of 6% and makes paymentssemi-annually. You purchase the bond today 1/1/2023 as yoursettlement date and you are interested in knowing what the YTMwill be. **Note, when calculating the YTM the bond price (% of par)and face value (% of par) will not be percentages, please usenumbers for their respective section. The Yield Calculation is alreadybuilt into excel, all you have to do is type is =yield.
Calculate YTC using a financial calculator by entering the number of payment periods until call for N, the price of the bond for PV, the interest payments for PMT, and the call price for FV. Then you can solve for 1/YR YTC. Again, remember you need to make the appropriate adjustments for a semiannual bond and realize that the calculated 1/YR is on a periodic basis so you will need to multiply the rate by 2 to obtain the annual rate. In addition, you need to make sure that the signs for PMT and FV are identical and the opposite sign is used for PV; otherwise, your answer will be incorrect. A company is more likely to call its bonds if they are able to replace their current high-coupon debt with less expensive financing. A bond is more likely to be called if its price is above par-because this means that the going market interest rate is less than its coupon rate. Quantitative Problem: Ace Products has a bond issue outstanding with 15 years remaining to maturity, a coupon rate of 8.4%…
You find a bond with 27 years until maturity that has a coupon rate of 9 percent and a yield to maturity of 10 percent. What is the Macaulay duration? The modified duration? Note: Do not round intermediate calculations. Round your answers to 3 decimal places.
Bond A makes semi-annual interest payments of $30. Bond B makes an annual payment of $50. All else equal, which one has the lower coupon rate? Select one: a. B b. A=B c. A
Suppose that you want to construct a 2-year maturity forward loan commencing in 3 years. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 5 Price $ 996.04 895.89 833.92 772.80 675.18 Required: a. Suppose that you buy today one 3-year maturity zero-coupon bond with face value $1,000. How many 5-year maturity zeros would you have to sell to make your initial cash flow equal to zero (specifically, what must be the total face value of those 5-year zeros)? b. What are the cash flows on this strategy in each year? c. What is the effective 2-year interest rate on the effective 3-year-ahead forward loan? d. & e. Confirm that the effective 2-year forward interest rate equals (1 + f4) ×(1 + f5)-1. You therefore can interpret the 2-year loan rate as a 2-year forward rate for the last two years. Alternatively, show that the effective 2-year forward rate equals (1 + y5) 15 + (1+y3) ³. - 1
Provide table solutions
Calculate the value of a 2-year 3.5% annual pay bond given the interest rate below. What is the implied 3-year spot rate? Time Period Forward Rate z1 0.80% 1f1 1.12% 1f2 3.94% 1f3 3.28% 1f4 3.14%
Suppose the current YTM on a 5-year T-Bond is 2.8% and the current YTM for a 1-year T-Bond is 0.75%. What is the 5-year term premium if the expected 1-year rates for thenext 4 years are 1.25%, 1.75%, 2.5%, and 3.25%?
1
Find the Macaulay duration and the modified duration of a 15-year, 7.5% corporate bond priced to yield 5.5%. According to the modified duration of this bond, how much of a price change would this bond incur if market yields rose to 6.5%? Using annual compounding, calculate the price of this bond in one year if rates do rise to 6.5%. How does this price change compare to that predicted by the modified duration? Explain the difference.
Consider a bond with a duration of 8.8 years priced at $1,100. If market interest rates were to increase by 0.25%, what would be the predicted new bond price according to duration?

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