Question

Consider a coupon bond with semi-annual coupon rate 6%, M = 100, and n = 20....

Consider a coupon bond with semi-annual coupon rate 6%, M = 100, and n = 20. Assume the semi-annual yield to maturity y = 6%. Let ? ′ denote the reinvestment rate of the coupon payments. Let ? ′ denote the interest rate at the time of sale. Also, assume your holding period to equal the Macaulay duration of the bond rounded to the closest integer. Calculate the total future dollars at the end of the holding period under the following two scenarios:

A. Interest rates increase immediately after the purchase, ? ′ = ? ′ = ? + 100 ????? ??????

b. Interest rates decrease immediately after the purchase, ? ′ = ? ′ = ? − 100 ????? ??????

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You purchased a $1,000 par value 20-year 4% coupon bond with semi-annual payments for $1,000. Immediately...
You purchased a $1,000 par value 20-year 4% coupon bond with semi-annual payments for $1,000. Immediately after the purchase, interest rates increased and the yield to maturity and coupon reinvestment rate increased to 6%. (the coupons themselves stayed at 4%) Interest rates and the yield to maturity remain at 6% and you sell the bond 5 years later, having reinvested the coupons at 6%. How much is in your account (proceeds from bond sale and value of all coupons after...
Suppose an investor can purchase a 6-year 9% coupon bond with a par value of $100...
Suppose an investor can purchase a 6-year 9% coupon bond with a par value of $100 that pays interest semi-annually. The yield to maturity for this bond is 10% on a bond-equivalent yield basis. What is the coupon interest, capital gain/loss and reinvestment income associated with this bond over its 6-year life? Assume that the reinvestment rate is equal to the yield to maturity.
Suppose an investor can purchase a 6-year 9% coupon bond with a par value of $100...
Suppose an investor can purchase a 6-year 9% coupon bond with a par value of $100 that pays interest semi-annually. The yield to maturity for this bond is 10% on a bond-equivalent yield basis. What is the coupon interest, capital gain/loss and reinvestment income associated with this bond over its 6-year life? Assume that the reinvestment rate is equal to the yield to maturity.
An investor buys a 9-year, 6.9% annual coupon bond at par ($100). After the purchase and...
An investor buys a 9-year, 6.9% annual coupon bond at par ($100). After the purchase and before the first coupon is received, interest rates increase to 8.9% (assume a flat spot rate curve). The investor sells the bond after 7 years (right after receiving the 7th coupon payment). What is this investor's realized annual return in these 7 years? Assume annual compounding, and that interest rates remain at 8.9% over the entire holding period.
An investor buys a 9-year, 6.9% annual coupon bond at par ($100). After the purchase and...
An investor buys a 9-year, 6.9% annual coupon bond at par ($100). After the purchase and before the first coupon is received, interest rates increase to 8.9% (assume a flat spot rate curve). The investor sells the bond after 7 years (right after receiving the 7th coupon payment). What is this investor's realized annual return in these 7 years? Assume annual compounding, and that interest rates remain at 8.9% over the entire holding period.
You are considering a coupon bond (par=$1,000) that pays semi-annual interest with a coupon rate of...
You are considering a coupon bond (par=$1,000) that pays semi-annual interest with a coupon rate of 6%. The bond currently has a bid price of 116.89 and an ask price of 117.00. If the last interest payment was made 60 days ago, and there are 180 days between the last interest payment and the next interest payment, what is the invoice price of the bond? A. $1,180.0 B. $1,170.0 C. $1,190.6 D. $1,168.9 You purchase a 10-year T-note which has...
Suppose you purchase a 8-year, 6% semi-annual coupon bond for 89.153. Immediately after you purchase the...
Suppose you purchase a 8-year, 6% semi-annual coupon bond for 89.153. Immediately after you purchase the bond, the yield for equivalently risk bonds decreases by 100 basis points. However, instead of holding the bond until maturity, you plan to hold the bond for 3 years and then sell it. All coupons will be reinvested at the prevailing yield on equivalently risky bonds. What will be your return on this investment in this scenario? Round your answer to three decimal places.
You purchase a bond issued by XYZ Ltd, which is a 8% semi-annual coupon bond with...
You purchase a bond issued by XYZ Ltd, which is a 8% semi-annual coupon bond with a term to maturity of 10 years, and currently trading at par. Four years later, immediately after receiving the eighth coupon payment, you sell the bond to your best friend. You best friend’s nominal yield to maturity is 7% per annum. Write down an equation that can be solved to find your total realised return over the 4-year holding period.
Consider a bond that pays 6% annual coupon on a face value of $1000 and has...
Consider a bond that pays 6% annual coupon on a face value of $1000 and has 5 years to maturity. Suppose you buy the bond at a time when its yield to maturity is 10%. Assumer further that immediately after you buy the bond, the market interest rate YTM declines to 8%. You hold the bond for two years and sell it at the end of the second year when YTM is still 8%. a) Calculate the annualized two year...
A 10-year corporate bond has a coupon rate of 6% with annual payments. If interest rates...
A 10-year corporate bond has a coupon rate of 6% with annual payments. If interest rates rise to 7% on similar bonds then what is the value of the bond in the marketplace? A 10-year corporate bond has a coupon rate of 6% with annual payments. If interest rates rise to 5% on similar bonds then what is the value of the bond in the marketplace? A 10-year corporate bond has a coupon rate of 6% with semi-annual payments. If...