Question

5. Imagine that a $10,000 ten-year bond was issued at an
interest rate of 6%. You are thinking about buying this bond one
year before the end of the ten years, but interest rates are now
9%.

a. Given the change in interest rates, would you expect to pay
more or less than $10,000 for the bond?

b. Calculate what you would actually be willing to pay for
this bond.

Answer #1

ans...

(a)

There exists an inverse relationship between bond prices and interest rates.

An increase in interest rates results in a fall in bond prices while a decrease in interest rates results in a rise in bond prices.

In given case, interest rate has increased from 6% to 9%.

Since, interest rate has increased, bond prices will fall.

Thus, given the change (increase) in interest rate, we would be expected to pay less than $10,000 for the bond.

(b)

Face value of ten-year bond (FV) = $10,000

Coupon interest rate (r) = 6% or 0.06

Annual interest = FV * r = $10,000 * 0.06 = $600

New interest rate = 9% or 0.09

Calculate new price of bond -

New price of bond = Annual interest/New interest rate = $600/0.09 = $6,666.67

We would be willing to pay $6,666.67 for this bond.

A ten-year bond is issued with 10% coupon and the discount rate
is 12%. After a single year, interest rates go up two percent to
14%. What should happen to your holding period return over that
single year if you did not sell your bond before the interest rate
increase? (You should do the math if you have enough time; use
Excel)
It will be slightly less than 12%
It will be slightly more than 12%
It will be significantly...

if the market rate of interest is 6%, a $10,000, 10 year bond
with a stated annual interest rate of 8% would be issued at an
amount of

(Bond valuation)
Xerox issued bonds that pay $ 47.50 in interest each year and will
mature in 5 years. You are thinking about purchasing the bonds. You
have decided that you would need to receive a return of 4
percent on your investment.
What is the value of the bond to you, first assuming that the
interest is paid annually and then semiannually?

3. A. You can buy a ten-year bond for $7000 which will pay you
$350 a year interest at the end of each year. When the bond matures
ten years from now, you will also receive the maturity value of
$6000. What is your internal rate of return? B. What would be your
internal rate of return if the interest were paid at the start of
each year PLEASE USE EXCEL TO CALCULATE?

8.You buy a bond with $1,000 face value, 2 years to maturity and
a 5% coupon rate.
The market interest rate is 6%. What price are you willing to
pay?
After 1 year, you cash in the coupon payment, and you sell the
bond again. Market interest rates are now 3%. What price can you
now sell the bond for?
What is your rate of return after 1 year?
Question options:
Buying price: About $981.67
Selling price: $981.67
Rate of...

Calculate total interest for: a $500,000, 10%, ten-year bond
issued at 97. The bond pays interest semi-annually on June 30 and
December 31.

Holding Period Yield [LO2] The YTM on a bond is the interest
rate you earn on your investment if interest rates don't change. If
you actually sell the bond before it matures, your realized return
is known as the holding period yield (HPY).
a. Suppose that today you buy a 7 percent annual coupon bond for
$1,060. The bond has 10 years to maturity. What rate of return do
you expect to earn on your investment?
b. Two years from...

A 5 year, $1000 par value bond with an annual coupon rate of 2%
was issued for par. At the same time, a 30 year, $1000 par value
bond with an annual coupon rate of 2% was issued for par. Which
company had the lower credit rating, the one that issued the 5 year
bond or the one that issued the 30 year bond? Explain. 5
points A year later, interest rates had risen
by 2% for each bond. What...

Li’s company has just issued a ten-year bond with a coupon rate
of 5% and YTM of 8%. The bond is callable at the end of the fifth
year and the call premium is $50. If the par value of the bond is
$1,000 and the coupon is paid every six month, calculate yield to
call.
a. 5.0%
b. 8.0%
c. 5.6%
d. 11.2%

The YTM on a bond is the interest rate you earn on your
investment if interest rates don’t change. If you actually sell the
bond before it matures, your realized return is known as the
holding period yield (HPY).
a.
Suppose that today you buy a bond with an annual coupon of 9
percent for $1,180. The bond has 17 years to maturity. What rate of
return do you expect to earn on your investment? Assume a par value
of...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 5 minutes ago

asked 41 minutes ago

asked 41 minutes ago

asked 47 minutes ago

asked 50 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