Question

a) A one-year discount bond has a face value of $1000 and price of $880. What is the yield to maturity on the bond? Report using percentages with two decimal places.

b) Suppose you have two clients who need your services for two years. One agreed to pay you $50,000 one year from now and another $50,000 in two years while the other paid $35,000 after one year, but $65,000 after two years. Assuming an interest rate of 10%, which one has a higher present value? Round off to the nearest dollar.

Answer #1

a) Future value = 1000

Present value = 880

t=1 yr

i=?

Formula for future value from present value is

F=P*(1+R)^t

now putting values into the formula

1000 = 880 * (1+i)^1

1+i = 1000/880

i= 1.13636-1

i =0.13636 = **13.636% ~ 13.64%**

B) i = 10% = 0.1

t = 2 yrs

first option

50000 after 1 yr and 50000 at the end of yr 2

PV of first option = 50000/(1+0.1)^1 + 50000/(1+0.1)^2

= 45454.545 + 41322.314

= 86776.859 ~ 86777

Second option

35000 after 1 yr and 65000 at the end of yr 2

PV of second option = 35000/(1+0.1)^1 + 65000/(1+0.1)^2

= 31818.181 + 53719.008

=85537.189 ~ 85537

Option 1 has the higher net present value (86777>85537)

The price of one-year bond (A) with zero coupon and face value $
1000 is $ 961.5. The price of two-year bond (B) with zero coupon
and face value $ 1000 is $ 907. Consider a third bond (C), a
two-year bond with $ 100 coupon paid annually and face value of $
1000.
(i) What must be the price of bond C so that the Law of One
Price holds. Explain where you use LOOP.
(ii) Suppose that the...

The yield-to-maturity (YTM) on one-year bond with zero coupon
and face value $ 1000 is 5 %. The YTM on two-year bond with 5 %
coupon paid annually and face value $ 1000 is 6 %. (i) What are the
current prices of these bonds? (ii) Find Macaulay durations of
these bonds. Consider a third bond which is a zero coupon two-year
bond with face value $ 1000. (iii) What must be the price of the
third bond so that...

A 15 year bond was issued six years ago. It has a Face Value of
$1000 and makes annual coupon payments of $42. If the current yield
to maturity is 4.0% pa, will this bond sell at a premium, discount
or at par today?
a.
premium
b.
not enough information provided to determine
c.
at par
d.
discount

25)
a 3 year discount bond with a face value of $500 and sale price
of $200.
a)calculate yield to maturity.
a coupon bond with face value of $200 and sale price of $200
b)calculate coupon rate if market demands a yield to maturity
for coupon bond that equals the yield to maturity of discount
bond

What is the price of a $1000 face value zero-coupon bond with 4
years to maturity if the required return on these bonds is 3%?
Consider a bond with par value of $1000, 25 years left to
maturity, and a coupon rate of 6.4% paid annually. If the yield to
maturity on these bonds is 7.5%, what is the current bond
price?
One year ago, your firm issued 14-year bonds with a coupon rate
of 6.9%. The bonds make semiannual...

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 bond has a 10 year maturity, a $1000 face value, and a 7%
coupon rate. If the market requires a yield of 8% on similar bonds,
it will mostly trade at a:
A. discount
B. premium
C. discount or premium, depending on its duration
Please give example, such as calculation and so on...

Consider a coupon bond that has a face value of $1000, has a
yield of 16%,
pays a semi annual coupon of 70, and matures in one year. Assuming
that the
bond will pay the face value amount that the cost coupon payment on
the
maturity date. Calculate the price of the bond.

What is the price of a 5-year, 8.1 % coupon rate, $1000 face
value bond that pays interest quarterly if the yield to maturity on
similar bonds is 11.5 %?

Suppose that Starbucks Corporation (SBUX) issued a two-year bond
with a face value of $1000 and an annual coupon rate of 6%. The
yield to maturity on this bond when it was issued was 5%.
What was the price of this bond when it was issued?
Does this bond trade at a discount, at par, or at a
premium?
Assuming the yield to maturity remains constant, what is the
price of the bond immediately before it makes its first coupon...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 6 minutes ago

asked 11 minutes ago

asked 26 minutes ago

asked 40 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago