EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 16, Problem 20PS
A
Summary Introduction
To calculate: The value of expected return rate of 30 year bond over the 5 year period.
Introduction: The return rate of the portfolio is defined in terms of the expected gain or loss after the maturity period of portfolio. The positive return means gain in the investment. Negative return shows the loss of the portfolio.
B
Summary Introduction
To calculate: The annual expected return rate of 20 year bond.
Introduction: The return rate is a measurement of the net gain or net loss over a period of time of the portfolio. Return value is a comparison between total incomes with the investment in the portfolio.
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A 30-year maturity bond has a 6.7% coupon rate, paid annually. It sells today for $881.17. A 20-year maturity bond has a 6.2% coupon
rate, also paid annually. It sells today for $893.1. A bond market analyst forecasts that in five years, 25-year maturity bonds will sell at
yields to maturity of 7.7% and 15-year maturity bonds will sell at yields of 7.2%. Because the yield curve is upward sloping, the analyst
believes that coupons will be invested in short-term securities at a rate of 7.2%.
a. Calculate the (annualized) expected rate of return of the 30-year bond over the 5-year period. (Round your answer to 2 decimal
places.)
Answer is complete but not entirely correct.
30-year bond
44.95%
b. What is the (annualized) expected return of the 20-year bond? (Round your answer to 2 decimal places.)
Answer is complete but not entirely correct.
20-year bond
41.98 X
A 30-year maturity bond has a 7% coupon rate, paid annually. It sells today for $867.42. A 20-year maturity bond has a 6.5% coupon rate, also paid annually. It sells today for $879.50. A bond market analyst forecasts that in five years, 25-year maturity bonds will sell at yields to maturity of 8% and 15-year maturity bonds will sell at yields of 7.5%. Because the yield curve is upward sloping, the analyst believes that coupons will be invested in short-term securities at a rate of 6%.a. Calculate the (annualized) expected rate of return of the 30-year bond over the 5-year period.b. What is the (annualized) expected return of the 20-year bond?
A bond with a face value of $1,000 has 10 years until maturity, carries a coupon rate of 9%, and sells for $1,100. Interest is paid annually. Assume a face value of $1,000 and annual coupon payments.a) If the bond has a yield to maturity of 9% 1 year from now, what will its price be at that time?b) What will be the rate of return on the bond? c) If the inflation rate during the year is 3%, what is the real rate of return on the bond? Assume annual interest payments.
Chapter 16 Solutions
EBK INVESTMENTS
Ch. 16 - Prob. 1PSCh. 16 - Prob. 2PSCh. 16 - Prob. 3PSCh. 16 - Prob. 4PSCh. 16 - Prob. 5PSCh. 16 - Prob. 6PSCh. 16 - Prob. 7PSCh. 16 - Prob. 8PSCh. 16 - Prob. 9PSCh. 16 - Prob. 10PS
Ch. 16 - Prob. 11PSCh. 16 - Prob. 12PSCh. 16 - Prob. 13PSCh. 16 - Prob. 14PSCh. 16 - Prob. 15PSCh. 16 - Prob. 16PSCh. 16 - Prob. 17PSCh. 16 - Prob. 18PSCh. 16 - Prob. 19PSCh. 16 - Prob. 20PSCh. 16 - Prob. 21PSCh. 16 - Prob. 22PSCh. 16 - Prob. 23PSCh. 16 - Prob. 24PSCh. 16 - Prob. 25PSCh. 16 - Prob. 1CPCh. 16 - Prob. 2CPCh. 16 - Prob. 3CPCh. 16 - Prob. 4CPCh. 16 - Prob. 5CPCh. 16 - Prob. 6CPCh. 16 - Prob. 7CPCh. 16 - Prob. 8CPCh. 16 - Prob. 9CPCh. 16 - Prob. 10CPCh. 16 - Prob. 11CPCh. 16 - Prob. 12CPCh. 16 - Prob. 13CP
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