You will receive $70 interest every six months from your investment in a corporate bond. The bond will mature in eightyears from now and has a face value of $1,000. This means that if you hold the bond until its maturity, you will continue to receive $70 interest semiannually and $1,000 face value at the end of eight years. a. What is the present value of the bond in the absence of inflation if the market interest rate is 9%? . The present value of the bond in the absence of inflation is $ 1289 (Round to the nearest dollar.) b. What would happen to the value of the bond if the inflation rate over the next eight years is expected to be %5? If the inflation rate over the next eight years is expected to be 5%, the present value of the bond will be $ 1700 (Round to the nearest dollar.)

You will receive $70 interest every six months from your investment in a corporate bond. The bond will mature in eightyears from now and has a face value of $1,000. This means that if you hold the bond until its maturity, you will continue to receive $70 interest semiannually and $1,000 face value at the end of eight years. a. What is the present value of the bond in the absence of inflation if the market interest rate is 9%? . The present value of the bond in the absence of inflation is $ 1289 (Round to the nearest dollar.) b. What would happen to the value of the bond if the inflation rate over the next eight years is expected to be %5? If the inflation rate over the next eight years is expected to be 5%, the present value of the bond will be $ 1700 (Round to the nearest dollar.)

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 invest in a 10-year Peloton bond that pays interest of 8.7% per year. If inflation is 6.1% per year, what is: The exact, real interest rate (Your answer should be a % carried to 3 places), and The approximate real interest rate? (Your answer should be a % carried to 1 place)
The interest rate on a 5-year Treasury bond is 3%. Investors expect that the one-year interest rate will be 1% in the coming year, 2% in the year after that, and will average 4% per year over the next three years. What is the term premium? Explain your answer.
A mortgage bond issued by Automation Engineering is for sale for $7,700. The bond has a face value of $10,000 with a coupon rate of 6% per year, payable semi-annually. What rate of return will be realized if the purchaser holds the bond to maturity 6 years from now? The rate of return will be % per year.
A bond's market price is $700. It has a $1,000 par value, will mature in 6 years, and has a coupon interest rate of 11 percent annual interest, but makes its interest payments semiannually. What is the bond's yield to maturity? What happens to the bond's yield to maturity if the bond matures in 12years? What if it matures in 3 years?
You wish to sell a bond that has a face valueof $5,000. The bond bears an interest rate of 7.5%,which is payable quarterly. Six years ago, the bondwas purchased at $4,800. At least a 9% annual returnon the investment is desired. What must be the minimum selling price of the bond now in order to makethe desired return on the investment?
An annual payment bond has a 10% required rate of return.Interest rates are expected to decrease 71 basis points.If the bond's duration is 12 years.what is the percentage change in bond's price?(write the answer in percentage and round it to two decimals)
The one year interest rate over the next ten years will be 6%, 7.5%, 8.5%, 10%, 10.5%, 11%, 12%, 13%, 14% and 15%. Using the expectations theory, what will be the interest rates on a three-year bond, five year bond, eight year bond, and ten year bond?
A 20-year government coupon bond has a face value of $1,000 and a coupon rate of 6% paid annually at the end of each year. Assume that the market interest rate is 8% per year. What is the bond’s PV? (You can sum the PVs for each of the coupon payments and the final $1,000, or you can use the annuity formula in the text, at p. 103, to calculate the PV of the coupon payments and save some work. If you use the annuity formula, be sure to add the PV of the final $1,000 payment to the annuity result.) Round your answer to the nearest dollar (XXX). Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.Answer completely.You will get up vote for sure.
Assume that one-year T bill rates are expected to rise by 150 basis points per year over the next six years. Further assume that expectation theory prevails. Compute the required interest rate on a six-year T-bond when the current one-year interest rate is 2.5%. 5.5% a 6.25% b 7.75% c 8.25% d None of the above.
A bond with a face value of $7 000 pays quarterly interest of 2.5 percent each period. 22 interest payments remain before the bond matures. How much would you be willing to pay for this bond today if the next interest payment is due now and you want to earn 6 percent compounded quarterly on your money?
Assume the coupon rate is 10% issue at par $1000 and for 15 years. Let say the market interest rate increase to 15% during the life of the bond. a) What is the interest payment for this bond annually b) What is the interest payment on semi-annually c) How much should the investors pay for this bondi.e. the value
A bond with a face value of $4,000 pays quarterly interest of 3.5 percent each period. Twenty-two interest payments remain before the bond matures. How much would you be willing to pay for this bond today if the next interest payment is due now and you want to earn 8 percent compounded quarterly on your money? A Click the icon to view the table of compound interest factors for discrete compounding periods when i = 2%. You should pay $. (Round to the nearest cent as needed.)

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