EBK 3N3-EBK: FINANCIAL ANALYSIS WITH MI
8th Edition
ISBN: 9780176914943
Author: Mayes
Publisher: VST
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Suppose you purchase a 10-year bond with 6% annual coupons. You hold the bond for fouryears, and sell it immediately after receiving the fourth coupon. If the bond’s yield to maturitywas 5% when you purchased and sold the bond,a. What cash flows will you pay and receive from your investment in the bond per $100 face value?b. What is the internal rate of return of your investment?
Suppose you purchase a 10-year bond with 5% annual coupons. You hold the bond for four years and sell it immediately after receiving the fourth coupon. If the bond's yield to
maturity was 3.49% when you purchased and sold the bond,
a. What cash flows will you pay and receive from your investment in the bond per $100 face value?
b. What is the internal rate of return of your investment?
Note: Assume annual compounding.
a. What cash flows will you pay and receive from your investment in the bond per $100 face value?
The cash flow at time 1-3 is $ (Round to the nearest cent. Enter a cash outflow as a negative number.)
Suppose you purchase a ten-year bond with 12% annual coupons. You hold the bond for four years and sell
it immediately after receiving the fourth coupon. If the bond's yield to maturity was 10.64% when you
purchased and sold the bond,
a. What cash flows will you pay and receive from your investment in the bond per $100 face value?
b. What is the internal rate of return of your investment?
Note: Assume annual compounding.
a. What cash flows will you pay and receive from your investment in the bond per $100 face value?
The cash flow at time 1-3 is $
(Round to the nearest cent. Enter a cash outflow as a negative number.)
The cash outflow at time 0 is $
number.)
(Round to the nearest cent. Enter a cash outflow as a negative
The total cash flow at time 4 (after the fourth coupon) is $. (Round to the nearest cent. Enter a cash
outflow as a negative number.)
b. What is the internal rate of return of your investment?
The internal rate of return of your investment is %. (Round to two decimal…
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- Suppose your friend is debating purchasing a bond that has a $1,000 par value, 13 years to maturity, and a 7% annual coupon. Your friend would like to determine the yield to maturity if the bond sells for a price of $980. In order to use your financial calculator to solve for the rate of return on this bond, you need to know the following information: PV: the bond's value or price N: the number of years before the bond matures PMT: the dollars of interest paid each year, which equals the coupon rate times the par value of the bond FV: par, or maturity, value of the bond Complete the following table by selecting the appropriate values for N, PV and PMT. Then use your financial calculator to solve for the rate of return, and complete the final row of the table. Input $1,000 Keystroke I/Y PV PMT FV Output Suppose your friend wants to know what price the bond will be in three years assuming the yield to maturity remains constant. To calculate what the bond price will be three years from…arrow_forwardSuppose you purchase a 10-year bond with 6.4% annual coupons. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 5.5% when you purchased and sold the bond, a. what cash flows will you pay and receive from your investment in the bond per $100 face value? b. what is the annual rate of return of your investment? a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flows from the investment are shown in the following timeline: (Round to the best choice below.) A. Year 0 1 2 3 4 Cash Flows $110.90 $6.40 $6.40 $6.40 $104.50 B. Year 0 1 2 3 4 Cash Flows - $106.78 $6.40 $6.40 $6.40 $110.90 C. Year 0 2 3 4 Cash Flows $104.50 $6.40 $6.40 $6.40 $110.90 OD. Year 1 2 3 Cash Flows $106.78 $6.40 $6.40 $6.40 $110.90 b. What is the annual rate of return of your investment? The annual rate of return of your investment is %. (Round to one decimal place.)arrow_forwardSuppose today you buy a coupon bond that you plan to sell one year later. Which of the rate of return formula incorporates future changes into the bond's price?arrow_forward
- The amount of money originally put into an investment is known as the present value P of the investment. For example, if you buy a $50 U.S. Savings Bond that matures in 10 years, the present value of the investment is the amount of money you have to pay for the bond today. The value of the investment at some future time is known as the future value F. Thus, if you buy the savings bond mentioned above, its future value is $50. If the investment pays an interest rate of r (as a decimal) compounded yearly, and if we know the future value F for t years in the future, then the present value P = P(F, r, t), the amount we have to pay today, can be calculated using the formula below. P = F × 1 (1 + r)t We measure F and P in dollars. The term 1/(1 + r)t is known as the present value factor, or the discount rate, so the formula above can also be written as the following. P = F × discount rate (a) Explain what information the function P(F, r, t) gives you. The function…arrow_forwardSuppose you buy a bond with 3 years to maturity. The face value is 1000 and the coupon rate is 12 %. Assume after holding the bond for one year the market interest rate falls to 8 % a. What will be the new price of your bond? b. What will be the annual rate of return on your bond? c. Discuss the interest rate risk on bonds using your results in parts (a) and (b)?arrow_forwardAssume you have the following asset and liability in your Balance Sheet:Asset - Bond AModified Duration = 2.6 yearsValue= RM1.5 millionAAFARLiability - Bond BModified Duration = 3.1 yearsValue= RM1.0 milliona. Calculate the duration gap. b. What is the expected change in Net Worth if interest increases by 1%?attachment. calculation step by steparrow_forward
- Suppose you purchase a 10-year bond with 6.1 % annual coupons. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 4.7 % when you purchased and sold the bond, a. What cash flows will you pay and receive from your investment in the bond per $ 100 face value? b. What is the annual rate of return of your investment?arrow_forwardGive typing answer with explanation and conclusionarrow_forwardIn order to measure the purchase price of an investment in bonds, which of the following time value of money concepts is used? Group of answer choices the future value of $1 the present value of an ordinary annuity all of these the future value of an ordinary annuityarrow_forward
- An investor is considering the purchase of a(n) 8.125%, 15-year corporate bond that's being priced to yield 10.125%. She thinks that in a year, this bond will be priced in the market to yield 9.125%. Using annual compounding, find the price of the bond today and in 1 year. Next, find the holding period return on this investment, assuming that the investor's expectations are borne out.arrow_forwardThe YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a.Suppose that today you buy a bond with an annual coupon rate of 6 percent for $1,150. The bond has 20 years to maturity. What rate of return do you expect to earn on your investment? Assume a par value of $1,000. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)b-1.Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)b-2.What is the HPY on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)arrow_forwardYou are considering the purchase of a perpetual bond that pays you $174 per year for the foreseeable future. If you require a 5.85% rate of return on this bond investment, what is a fair price for the bond that you would be willing to pay today? To nearest $0.01arrow_forward
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