Question

A $1,000 maturity value bond has 15 years left to maturity. The bond has an 8.5% coupon rate and pays interest annually.

a. If you want to earn a 7% rate of return, how much would you be willing to pay today for this bond?

b. Suppose you buy the bond for the value you calculated in part a. After holding the bond for two years and receiving two interest payments, you sell the bond for $1,032.43. What annual, compound rate of return have you earned over this two year period? Show that PVget equals PVgiveup. (Try 3%, 7% or 8%)

c. Suppose you buy the bond for the value you calculated in part a. After holding the bond for two years and receiving two interst payments, you sell the bond. What price must you receive (at time 2) to earn your desired 7% rate of return?

Answer #1

Answer a.

Par Value = $1,000

Time to Maturity = 15 years

Annual Coupon = 8.50%*$1,000 = $85

Rate of Return = 7%

Current Price = $85 * PVIFA(7%, 15) + $1,000 * PVIF(7%,
15)

Current Price = $85 * (1 - (1/1.07)^15) / 0.07 + $1,000 /
1.07^15

Current Price = $1,136.62

Answer b.

Purchase Price = $1,136.62

Annual Coupon = $85

Period = 2 years

Selling Price = $1,032.43

Let rate of return earned be i%

$1,136.62 = $85/(1+i) + $85/(1+i)^2 + $1,032.43/(1+i)^2

Using financial calculator:

N = 2

PV = -1136.62

PMT = 85

FV = 1032.43

I = 2.96%

Rate of Return = 2.96% or 3%

Answer c.

Purchase Price = $1,136.62

Annual Coupon = $85

Period = 2 years

Required Rate of Return = 7%

Let selling price be $x

$1,136.62 = $85/1.07 + $85/1.07^2 + $x/1.07^2

$1,136.62 = $153.682 + $x*0.8734

$x * 0.8734 = $982.938

$x = $1,125.42

So, selling price is $1,125.42

A coupon bond pays annual interest, has a par value of $1,000,
matures in 12 years, has a coupon rate of 8%, and has a yield to
maturity of 7%.
1) Calculate the price of the bond and the Current Yield.
2) The Macaulay Duration for this bond is 8.29
years, then what is the
Modified Duration?
3) Suppose you sell the bond at $1000 two years later. The
reinvestment return
during these two years is 6%. What is the...

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...

Bond A is a $1,000, 6% quarterly coupon bond with 5 years to
maturity.
(a) If you bought Bond A today at a yield (APR) of 8%, what is
your purchase price? Is this a premium or discount bond? Why?
(b) One year later, Bond A's YTM (APR) has gone down to 6% and
you sell it immediately after receiving the coupon.
(i) What is the current yield?
(ii) What is the capital gains yield?
(iii) What is the one-year...

5. SupPose you buy a five-year zero-coupon Treasury bond for
$800 per $1,000 face value. Answer the following questions: (a)
What is the yield to maturity (annual compounding) on the bond? (b)
Assume the yield to maturity on comparable zeros increases to 7%
immediately after purchasing the bond and remains there. Calculate
your annual return (holding period yield) if you sell the bond
after one year. (c) Assume yields to maturity on comparable bonds
remain at7%, calculate your annual return...

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...

1A (13 pts). Suppose that a coupon bond has a face value of
$1,000, a maturity of 3 years, and the holders of this bond receive
a number of semi-annual interest payments and receives $1030 when
the bond matures. If you are told that the yield to maturity (the
interest rate on a comparable investment) for this bond is 5%,
calculate the number of payments received by the holders of this
bond, the present value of each of these payments,...

You just bought a newly issued bond which has a face value of
$1,000 and pays its coupon once annually. Its coupon rate is 5%,
maturity is 20 years and the yield to maturity for the bond is
currently 8%.
Do you expect the bond price to change in the future when the
yield stays at 8%? Why or why not? Explain. (No calculation is
necessary.)
2 marks)
Calculate what the bond price would be in one year if its...

A bond has a $1,000 par value, 10 years to maturity, and pays a
coupon of 7.0% per year, semiannually. You expect the bond’s yield
to maturity to decrease to 6.5% per year in two years. If you buy
the bond today for $987.75 and sell it in two years, what is the
annual return on your investment?
Question 9 options:
A)
9.42%
B)
9.12%
C)
8.96%
D)
8.74%
E)
9.04%

A. A bond has a par value of $1,000, a time to
maturity of 20 years, and a coupon rate of 7.50% with interest paid
annually. If the current market price is $750, what will be the
approximate capital gain of this bond over the next year if its
yield to maturity remains unchanged? (Do not round
intermediate calculations. Round your answer to 2 decimal
places.)
B. Suppose that today’s date is April 15. A
bond with a 8% coupon...

Finance
1. A bond has a $1,000 par value, 10 years to maturity, and an
8% annual coupon and sells for $980.
a. What is its yield to maturity (YTM)? Round your answer to two
decimal places.
__%
b. Assume that the yield to maturity remains constant for the
next four years. What will the price be 4 years from today?Do not
round intermediate calculations. Round your answer to the nearest
cent.
$____
2. Nesmith Corporation's outstanding bonds have a...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 14 seconds ago

asked 2 minutes ago

asked 7 minutes ago

asked 12 minutes ago

asked 15 minutes ago

asked 16 minutes ago

asked 16 minutes ago

asked 18 minutes ago

asked 19 minutes ago

asked 21 minutes ago

asked 21 minutes ago

asked 21 minutes ago