You plan to invest in Fixed income so you have decided that Corporate Bonds are appropriate for your investment needs. You find a bond that that matures in 10 years but can be called in 5 years. The Yield to Call equals 8.62% and coupon payments are 8.5%. Par value equals $1,000. Hint: If called, the holder receives Par plus a year of coupon payments. What is the most you should be willing to pay for each Bond? Enter your answer to the nearest penny.

You plan to invest in Fixed income so you have decided that Corporate Bonds are appropriate for your investment needs. You find a bond that that matures in 10 years but can be called in 5 years. The Yield to Call equals 8.62% and coupon payments are 8.5%. Par value equals $1,000. Hint: If called, the holder receives Par plus a year of coupon payments. What is the most you should be willing to pay for each Bond? Enter your answer to the nearest penny.

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 we want to purchase a Company XYZzero-coupon bond that has a $1,000 face valueand matures in three years, and we would like toearn a yield of 10% per year on this investment.How much shall we pay for this bond?– Hint: Coupon bond or Zero-coupon bond?
YOUR BANK is thinking to issue a regular coupon bond (debenture) with following particulars: Maturity = 3 years, Coupon rate = 7.000%, Face value = $1,000.00, Coupon payments are annual and paid at the end of a year. In the fixed-income securities market, the yield curve for a bond with a similar default risk characteristics as one issued by YOUR BANK, is downward-upward sloping with the following interest rates per annum continuously compounded: Ro,1 = 8.000%, Ro,2 = 7.000%, R0,3 = 6.000%, R0,4 = 7.000%, and R0,5 = 7.500%, Where, the notation RoT is the spot-interest rate (at time t = 0) for T year maturity zero-coupon bond. As per you, what should be the issue (offer) price per bond of YOUR BANK in US dollars? (Roundoff your answer to the nearest four decimal places, in order to get as close answer as possible in Canvas.)
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Solve it correctly please. I will rate accordingly.
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