The prices of zero coupon bonds, 8% and 10% coupon bonds at maturity Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 14, Problem 10PS

a.

Summary Introduction

To determine: The prices of zero coupon bonds, 8% and 10% coupon bonds at maturity

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

a.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bondsat maturity are $463.19, $1,000 and $1,134.20 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10=$1,0002.16=$463.19

So, the price of zero coupon bond is $463.19

(ii)Calculate the price of coupon bond (8%),

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10=$74.074+$68.587+$63.506+.....+$500.248=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10=$92.592+$85.733+$79.383+.....+$509.512=$1,134.20

So, the coupon bond price (10%) is $1,134.20

b.

Summary Introduction

To determine: The price of each bond.

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

b.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii) Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii) Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

c.

Summary Introduction

To determine: The before tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

c.

Expert Solution

Answer to Problem 10PS

The before tax holding period return on each stock is shown in table.

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculation of the pre tax rate of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
PRICE AFTER 1 YEAR	500.25	1000	1124.94
PRICE AT 10 YEARS	463.19	1000	1134.2
CHANGE IN PRICE	37.06	0	-9.26
COUPON INCOME	0	80	100
PRE-TAX INCOME(PRICE+COUPON)	37.06	80	90.74
PRE-TAX RATE OF RETURN	8.00%	8.00%	8.00%

d.

Summary Introduction

To determine: The after tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

d.

Expert Solution

Answer to Problem 10PS

The after tax holding period return on each is shown in table

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculate the after tax of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
TAXES	7.412	24	28.148
AFTER TAX INCOME	29.92	56	62.59
AFTER TAX RATE OF INTEREST	6.46%	5.60%	5.52%

e.

Summary Introduction

To determine: The price of each bond with maturity of 7% at the beginning

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

e.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii)Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Citibank is a US Bank which lost US$500 million due to human error in August 2020. Read the case noted in the link below, and answer the following questions: https://finopsinfo.com/investors/citis-900m-blunder-casts-light-on-poor-loan-ops/ Develop a risk management programme appropriate for this case (use attached template) Explain how compliance to this risk management programme can prevent the operation risk issue experienced by Citibank. Discuss the importance of an internal risk assessment and auditing process in relation to this case Step 1 Risks Brief description & how it relates to the case Step 2 List of possible risks Likelihood/Probability of occurrenceH/M/L or Nil Impact (if occurred)H/M/L or Nil What is being done about it now What more can be done about it Dept. where risk exposure exists Step 3 Risk identified Impact (if occurred)H/M/L Probability of occurrenceH/M/L Dept. where risk…

Citibank is a US Bank which lost US$500 million due to human error in August 2020. Read the case noted in the link below, and answer the following questions: https://finopsinfo.com/investors/citis-900m-blunder-casts-light-on-poor-loan-ops/ Develop a risk management programme appropriate for this case (use attached template) Explain how compliance to this risk management programme can prevent the operation risk issue experienced by Citibank. Discuss the importance of an internal risk assessment and auditing process in relation to this case Step 1 Risks Brief description & how it relates to the case Step 2 List of possible risks Likelihood/Probability of occurrenceH/M/L or Nil Impact (if occurred)H/M/L or Nil What is being done about it now What more can be done about it Dept. where risk exposure exists Step 3 Risk identified Impact (if occurred)H/M/L…

Citibank is a US Bank which lost US$500 million due to human error in August 2020. Read the case noted in the link below, and answer the following questions: https://finopsinfo.com/investors/citis-900m-blunder-casts-light-on-poor-loan-ops/ Develop a risk management programme appropriate for this case (use attached template) Explain how compliance to this risk management programme can prevent the operation risk issue experienced by Citibank. Discuss the importance of an internal risk assessment and auditing process in relation to this case

Answer 2

Question

Chapter 14, Problem 10PS

a.

Summary Introduction

To determine: The prices of zero coupon bonds, 8% and 10% coupon bonds at maturity

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

a.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bondsat maturity are $463.19, $1,000 and $1,134.20 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10=$1,0002.16=$463.19

So, the price of zero coupon bond is $463.19

(ii)Calculate the price of coupon bond (8%),

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10=$74.074+$68.587+$63.506+.....+$500.248=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10=$92.592+$85.733+$79.383+.....+$509.512=$1,134.20

So, the coupon bond price (10%) is $1,134.20

b.

Summary Introduction

To determine: The price of each bond.

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

b.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii) Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii) Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

c.

Summary Introduction

To determine: The before tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

c.

Expert Solution

Answer to Problem 10PS

The before tax holding period return on each stock is shown in table.

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculation of the pre tax rate of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
PRICE AFTER 1 YEAR	500.25	1000	1124.94
PRICE AT 10 YEARS	463.19	1000	1134.2
CHANGE IN PRICE	37.06	0	-9.26
COUPON INCOME	0	80	100
PRE-TAX INCOME(PRICE+COUPON)	37.06	80	90.74
PRE-TAX RATE OF RETURN	8.00%	8.00%	8.00%

d.

Summary Introduction

To determine: The after tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

d.

Expert Solution

Answer to Problem 10PS

The after tax holding period return on each is shown in table

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculate the after tax of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
TAXES	7.412	24	28.148
AFTER TAX INCOME	29.92	56	62.59
AFTER TAX RATE OF INTEREST	6.46%	5.60%	5.52%

e.

Summary Introduction

To determine: The price of each bond with maturity of 7% at the beginning

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

e.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii)Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 14, Problem 10PS

a.

Summary Introduction

To determine: The prices of zero coupon bonds, 8% and 10% coupon bonds at maturity

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

a.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bondsat maturity are $463.19, $1,000 and $1,134.20 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10=$1,0002.16=$463.19

So, the price of zero coupon bond is $463.19

(ii)Calculate the price of coupon bond (8%),

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10=$74.074+$68.587+$63.506+.....+$500.248=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10=$92.592+$85.733+$79.383+.....+$509.512=$1,134.20

So, the coupon bond price (10%) is $1,134.20

b.

Summary Introduction

To determine: The price of each bond.

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

b.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii) Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii) Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

c.

Summary Introduction

To determine: The before tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

c.

Expert Solution

Answer to Problem 10PS

The before tax holding period return on each stock is shown in table.

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculation of the pre tax rate of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
PRICE AFTER 1 YEAR	500.25	1000	1124.94
PRICE AT 10 YEARS	463.19	1000	1134.2
CHANGE IN PRICE	37.06	0	-9.26
COUPON INCOME	0	80	100
PRE-TAX INCOME(PRICE+COUPON)	37.06	80	90.74
PRE-TAX RATE OF RETURN	8.00%	8.00%	8.00%

d.

Summary Introduction

To determine: The after tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

d.

Expert Solution

Answer to Problem 10PS

The after tax holding period return on each is shown in table

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculate the after tax of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
TAXES	7.412	24	28.148
AFTER TAX INCOME	29.92	56	62.59
AFTER TAX RATE OF INTEREST	6.46%	5.60%	5.52%

e.

Summary Introduction

To determine: The price of each bond with maturity of 7% at the beginning

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

e.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii)Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 14, Problem 10PS

a.

Summary Introduction

To determine: The prices of zero coupon bonds, 8% and 10% coupon bonds at maturity

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

a.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bondsat maturity are $463.19, $1,000 and $1,134.20 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10=$1,0002.16=$463.19

So, the price of zero coupon bond is $463.19

(ii)Calculate the price of coupon bond (8%),

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10=$74.074+$68.587+$63.506+.....+$500.248=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10=$92.592+$85.733+$79.383+.....+$509.512=$1,134.20

So, the coupon bond price (10%) is $1,134.20

b.

Summary Introduction

To determine: The price of each bond.

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

b.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii) Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii) Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

c.

Summary Introduction

To determine: The before tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

c.

Expert Solution

Answer to Problem 10PS

The before tax holding period return on each stock is shown in table.

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculation of the pre tax rate of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
PRICE AFTER 1 YEAR	500.25	1000	1124.94
PRICE AT 10 YEARS	463.19	1000	1134.2
CHANGE IN PRICE	37.06	0	-9.26
COUPON INCOME	0	80	100
PRE-TAX INCOME(PRICE+COUPON)	37.06	80	90.74
PRE-TAX RATE OF RETURN	8.00%	8.00%	8.00%

d.

Summary Introduction

To determine: The after tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

d.

Expert Solution

Answer to Problem 10PS

The after tax holding period return on each is shown in table

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculate the after tax of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
TAXES	7.412	24	28.148
AFTER TAX INCOME	29.92	56	62.59
AFTER TAX RATE OF INTEREST	6.46%	5.60%	5.52%

e.

Summary Introduction

To determine: The price of each bond with maturity of 7% at the beginning

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

e.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii)Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 14, Problem 10PS

a.

Summary Introduction

To determine: The prices of zero coupon bonds, 8% and 10% coupon bonds at maturity

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

a.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bondsat maturity are $463.19, $1,000 and $1,134.20 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10=$1,0002.16=$463.19

So, the price of zero coupon bond is $463.19

(ii)Calculate the price of coupon bond (8%),

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10=$74.074+$68.587+$63.506+.....+$500.248=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10=$92.592+$85.733+$79.383+.....+$509.512=$1,134.20

So, the coupon bond price (10%) is $1,134.20

b.

Summary Introduction

To determine: The price of each bond.

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

b.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii) Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii) Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

c.

Summary Introduction

To determine: The before tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

c.

Expert Solution

Answer to Problem 10PS

The before tax holding period return on each stock is shown in table.

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculation of the pre tax rate of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
PRICE AFTER 1 YEAR	500.25	1000	1124.94
PRICE AT 10 YEARS	463.19	1000	1134.2
CHANGE IN PRICE	37.06	0	-9.26
COUPON INCOME	0	80	100
PRE-TAX INCOME(PRICE+COUPON)	37.06	80	90.74
PRE-TAX RATE OF RETURN	8.00%	8.00%	8.00%

d.

Summary Introduction

To determine: The after tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

d.

Expert Solution

Answer to Problem 10PS

The after tax holding period return on each is shown in table

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculate the after tax of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
TAXES	7.412	24	28.148
AFTER TAX INCOME	29.92	56	62.59
AFTER TAX RATE OF INTEREST	6.46%	5.60%	5.52%

e.

Summary Introduction

To determine: The price of each bond with maturity of 7% at the beginning

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

e.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii)Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

Answer 6

Chapter 14, Problem 10PS

a.

Summary Introduction

To determine: The prices of zero coupon bonds, 8% and 10% coupon bonds at maturity

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

a.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bondsat maturity are $463.19, $1,000 and $1,134.20 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10=$1,0002.16=$463.19

So, the price of zero coupon bond is $463.19

(ii)Calculate the price of coupon bond (8%),

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10=$74.074+$68.587+$63.506+.....+$500.248=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10=$92.592+$85.733+$79.383+.....+$509.512=$1,134.20

So, the coupon bond price (10%) is $1,134.20

Answer 7

Chapter 14, Problem 10PS

a.

Summary Introduction

To determine: The prices of zero coupon bonds, 8% and 10% coupon bonds at maturity

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

Answer 8

a.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bondsat maturity are $463.19, $1,000 and $1,134.20 respectively

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10=$1,0002.16=$463.19

So, the price of zero coupon bond is $463.19

(ii)Calculate the price of coupon bond (8%),

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10=$74.074+$68.587+$63.506+.....+$500.248=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10=$92.592+$85.733+$79.383+.....+$509.512=$1,134.20

So, the coupon bond price (10%) is $1,134.20

Answer 13

b.

Summary Introduction

To determine: The price of each bond.

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

b.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii) Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii) Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

Answer 14

b.

Summary Introduction

To determine: The price of each bond.

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

Answer 15

b.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Answer 16

b.

Expert Solution

Answer 17

b.

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii) Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii) Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

Answer 20

c.

Summary Introduction

To determine: The before tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

c.

Expert Solution

Answer to Problem 10PS

The before tax holding period return on each stock is shown in table.

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculation of the pre tax rate of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
PRICE AFTER 1 YEAR	500.25	1000	1124.94
PRICE AT 10 YEARS	463.19	1000	1134.2
CHANGE IN PRICE	37.06	0	-9.26
COUPON INCOME	0	80	100
PRE-TAX INCOME(PRICE+COUPON)	37.06	80	90.74
PRE-TAX RATE OF RETURN	8.00%	8.00%	8.00%

Answer 21

c.

Summary Introduction

To determine: The before tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

Answer 22

c.

Expert Solution

Answer to Problem 10PS

The before tax holding period return on each stock is shown in table.

Answer 23

c.

Expert Solution

Answer 24

c.

Expert Solution

Answer 25

Expert Solution

Answer 26

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculation of the pre tax rate of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
PRICE AFTER 1 YEAR	500.25	1000	1124.94
PRICE AT 10 YEARS	463.19	1000	1134.2
CHANGE IN PRICE	37.06	0	-9.26
COUPON INCOME	0	80	100
PRE-TAX INCOME(PRICE+COUPON)	37.06	80	90.74
PRE-TAX RATE OF RETURN	8.00%	8.00%	8.00%

Answer 27

d.

Summary Introduction

To determine: The after tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

d.

Expert Solution

Answer to Problem 10PS

The after tax holding period return on each is shown in table

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculate the after tax of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
TAXES	7.412	24	28.148
AFTER TAX INCOME	29.92	56	62.59
AFTER TAX RATE OF INTEREST	6.46%	5.60%	5.52%

Answer 28

d.

Summary Introduction

To determine: The after tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

Answer 29

d.

Expert Solution

Answer to Problem 10PS

The after tax holding period return on each is shown in table

Answer 30

d.

Expert Solution

Answer 31

d.

Expert Solution

Answer 32

Expert Solution

Answer 33

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculate the after tax of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
TAXES	7.412	24	28.148
AFTER TAX INCOME	29.92	56	62.59
AFTER TAX RATE OF INTEREST	6.46%	5.60%	5.52%

Answer 34

e.

Summary Introduction

To determine: The price of each bond with maturity of 7% at the beginning

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

e.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii)Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

Answer 35

e.

Summary Introduction

To determine: The price of each bond with maturity of 7% at the beginning

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

Answer 36

e.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Answer 37

e.

Expert Solution

Answer 38

e.

Expert Solution

Answer 39

Expert Solution

Answer 40

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t