Question

Investor A has just sold a ten-year $10,000 corporate bond to Investor B for $8,500. Investor A purchased the bond four years ago for $9,500. The bond coupon rate is 8 percent per year paid annually and Investor A has just received the dividend for year 4.

- Draw the cash flow diagram for Investor A
- Calculate the Rate of Return for Investor A
- Draw the cash flow diagram for Investor B
- Investor B has a MARR of 10% per year compounded semi-annually. Will the return on the corporate bond meet the Investor B’s MARR?

**SHOW WORK AND DONT USE EXCEL**

Answer #1

Investor A has just sold a ten-year $10,000 corporate bond to
Investor B for $8,500. Investor A purchased the bond four years ago
for $9,500. The bond coupon rate is 8 percent per year paid
annually and Investor A has just received the dividend for year
4.
a) Draw the cash flow diagram for Investor A
b) Calculate the Rate of Return for Investor A
c) Draw the cash flow diagram for Investor B
d) Investor B has a MARR...

Investor A has just sold a ten-year $10,000 corporate bond to
Investor B for $8,500. Investor A purchased the bond four years ago
for $9,500. The bond coupon rate is 8 percent per year paid
annually and Investor A has just received the dividend for year
4.Investor B has a MARR of 10% per year compounded semi-annually.
Will the return on the corporate bond meet the Investor B’s
MARR?

(a) Consider a 14-year, 9.5%
corporate bond with face value $10,000. Assume that the bond pays
semi-annual coupons. Compute the fair value of the bond today if
the nominal yield-to-maturity is 11% compounded semi-annually.
(b) Consider a 11-year,
corporate bond with face value $1,000 that pays semi-annual coupon.
With the nominal yield-to-maturity equal to 10%, the bond is
selling at $802.5550. Find the coupon rate for this bond. Assume
that the market is in equilibrium so that the fair value...

"An investor just purchased a 5-year $1,000 par value bond. The
coupon rate on this bond is 10% annually, with interest paid every
year. If the investor expects to earn 12% simple rate of return,
how much the investor should pay for it?"
Please explain the process thoroughly.

A five-year corporate bond with a face value of $10,000 pays
interest at a coupon rate of 5.0%. The required return for
investing in this bond is 4.0%. At what market price will the bond
sell if the interest is paid semi-annually?

A 3.375%, 10-year bond with semi-annual coupon payments and a
face value of $10,000 has just been sold at par.
What are the cash flows to the bond?
What is the (annual) required return on the bond?
If a 10-year zero-coupon bond were marketed at the same
required return as in part b), what would be the price of a $10,000
face value bond?
Immediately after issuance, if the required return increases by
0.50% per year, compounded semi-annually, what will...

Clarrie has just bought a 14-year Treasury bond paying coupon
semi-annually at j2 = 5% p.a. The bond matures at par.
a. Find Clarrie’s purchase price (per $100 face value, rounded
to 3 decimal places) of this Treasury bond, allowing for a 30% tax
on interest only, to give a yield of j2 = 3.2% p.a. (net). Draw a
cash flow diagram that models this scenario to accompany your
answer.
b. Find Clarrie’s purchase price (per $100 face value, rounded...

An investor buys a bond that has a 5-year life, an annual coupon
rate of 5.5%, and is currently trading at a Yield to Maturity of
5.5%. The coupons are paid semi-annually, and the bond has a par
value of $1,000. After holding the bond for 1-year, the bonds Yield
to Maturity has decreased from 5.5% to 4.0%. Assume that the
investor has received a full year of coupon payments.
What is this investors Rate of Return from this investment?...

Joe is considering purchasing a ten-year bond that has a face
value of $10,000. The bond has a bond rate of 10% with bond
premiums paid quarterly (10%/yr/qtr). The bond has a remaining life
of four years. The seller is asking $9250 for the bond and Joe has
set a personal MARR of 12% compounded quarterly (12%/yr/qtr). Would
you recommend he purchase the bond? Justify your answer. (Note –
Assume Joe will own the bond until it matures..... this means...

(a) Investor A holds a 10-year bond, while investor B holds an
8-year bond. If the interest rate increases by 1 percent, which
investor has the higher interest rate risk? Explain. (b) Investor A
holds a 10-year bond paying 8 percent a year, while investor B also
has a 10-year bond that pays a 6 percent coupon. Which investor has
the higher interest rate risk? Explain.

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