Question

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 total rate of return (in APR) if the coupons are reinvested at 2% per quarter during the holding period?

(iv) Can Bond A’s one-year total rate of return be determined correctly by simply adding up the current yield and the capital gains yield? Explain your answer without calculations.

(c) Consider two other bonds: Bond B and Bond C. Bond B: A $1,000, 7% quarterly coupon bond with 4 years to maturity Bond C: A $1,000 zero coupon bond with 2 years to maturity

(i) Without calculation, briefly explain which bond in the following pairs has higher interest rate risk.

1) Bond A vs. Bond B

2) Bond B vs. Bond C

(ii) Suppose you are holding a bond portfolio made up of Bonds A and B for long-term investment purpose. If you are predicting the general interest rate to decrease in the next year (i.e., the coming quarters), what should you do to your portfolio to maximize your return?

Answer #1

(a)

(b)

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...

You just bought a newly issued bond which has a face value of
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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...

You have just purchased a $1,000 bond with 7% annual coupon and
maturity in 10 years.
If the yield‐to‐maturity is 6%, how much did you pay for the
bond?
If, 1 year later and on the day after you receive the first
coupon, the bond’s yield‐to‐maturity goes up to 8%, and you need
cash and have to liquidate your investment. What will be your
selling price?
What will be your 1‐year holding period rate of return?

A newly issued bond pays its coupons once annually. Its coupon
rate is 5%, its maturity is 20 years, and its
yield to maturity is 6%.
a) Find the price of the bond.
b) After one year, the bond is selling at a yield to maturity of
5.5%. Find the holding period return if you
sell the bond after one year.
c) If you sell the bond after one year, what taxes will you owe?
Assume that the tax rate...

Boliver Basic Industries (BBI) issued $1,000 12-year bonds 3
years ago. The bonds make quarterly coupon payments and have a
coupon rate of 8%. Bonds of similar risk and maturity offer a
yield-to-maturity of 7% APR (compounded semi-annually). What is the
value of a BBI bond?

Two years ago, you bought a 10-year, 6% annualcoupon payment
bond when its yield-to-maturity was 8%. Right after you purchased
this bond, the yield-to-maturity on this bond increased to 9% and
stayed at the same level in the next two years. You reinvested the
coupon payments at the market rate of 9%. You just sold the bond at
9% yield-to-maturity. What is your annualized holding period
return? What is your capital gain/loss? Note: Remember
that capital gains/losses are computed with...

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...

. A bond with a coupon rate of 6%, paid quarterly, and 4 years
to maturity is being offered in the market. If bonds with similar
risks are currently being paid 8%, what is the price you would pay
for this bond?
A. $981
B $425
C. $1,139
D. $932

b.Suppose a ten-year, $1,000 bond with an 8.8% coupon rate and
semiannual coupons is trading for $1,035.87.
a. What is the bond's yield to maturity (expressed as an APR
with semiannual compounding)?
b. If the bond's yield to maturity changes to 9.6% APR, what
will be the bond's price?
C. Suppose that General Motors Acceptance Corporation issued a
bond with 10 years until maturity, a face value of $1,000, and a
coupon rate of 7.6% (annual payments). The yield to...

(Bonds) A bond with a $1,000 par, 5 years to maturity, a coupon
rate of 5%, and annual payments has a yield to maturity of 3.4%.
What will be the percentage change in the bond price if the yield
changes instantaneously to 5.8%? (If your answer is, e.g., -1.123%,
enter it as -1.123. If the sign of the price change is incorrect,
no credit will be given.)
Please and thanks

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