Question

Suppose that an investor with a 10-year investment horizon is
considering purchasing a 20-year 8% coupon bond selling for $900.
The parvalue of the bond is $1000. The original YTM on the bond is
10%, but the investor expects that he can reinvest the coupon
payments at an annual interest rate of 7% and that at the end of
the investment horizonthis 10-year bondwill be selling to offer a
yieldof 9%. What is the total return for this bond?

Step 1: Compute the total coupon payments plus the interest on coupons:

Step 2: Determine the projected sale price at the end of ten years:

Step 3: Adding the amounts in steps 1 and 2 gives total future dollars of how much?

Step 4: Obtain the semiannualtotal return:

Step 5: Obtain the annualtotal return:

Answer #1

Future value (FV) of reinvested coupons at the end of the `10-year holding period: PMT (semi-annual coupon) = par value*coupon rate/2 = 1,000*8%/2 = 40; N (number of coupons paid) = 10*2 = 20; rate (semi-annual reinvestment rate) = 7%/2 = 3.5%, solve for FV.

Future value = 1,131.19

Price of the bond after 10 years: FV (par value) = 1,000; PMT (semi-annual coupons) = 40; N (number of coupons pending after 10 years) = 10*2 = 20; rate (semi-annual YTM) = 9%/2 = 4.5%, solve for PV.

Price of the bond after 10 years = 934.96

Total amount after 10 years = 1,131.19 + 934.96 = 2,066.15

Amount invested = price of the bond now which is 900.

Total annual return = [(total amount after 10 years/amount invested)^(1/holding period)] -1 = [(2,066.15/900)^(1/10)] -1 = 8.67%

Please answer each step to get to the final answer without using
excel. Thank you!
Suppose that an investor with a 10-year investment horizon is
considering purchasing a 20-year 8% coupon bond selling for $900.
The par value of the bond is $1000. The original YTM on the bond is
10%, but the investor expects that he can reinvest the coupon
payments at an annual interest rate of 7% and that at the end of
the investment horizon this 10-year...

16. Suppose that an investor with a five-year investment
horizon is considering purchasing a seven-year 7% coupon bond
selling at par. The investor expects that he can reinvest the
coupon payments at an annual interest rate of 9.4% and that at the
end of the investment horizon two- year bonds will be selling to
offer a yield to maturity of 11.2%. What is the total return on
this investment? Hint: Draw the cashflows of the 7 year bond. Using
Par...

Suppose that an investor with a five-year investment horizon is
considering purchasing a seven-year 9% (annual rate) coupon bond
selling at par. The investor expects that he can reinvest the
coupon payments at an annual interest rate of 9.4% and that at the
end of the investment horizon two-year bonds will be selling to
offer a yield to maturity of 11.2%. What is the total return for
this bond? Assume semiannual coupon payments.

Suppose that an investor with a six-month investment horizon is
considering purchasing a 10-year 4% coupon bond (face value=$1,000)
selling at $944.66. The investor expects that six months later the
bond will be selling to offer a yield to maturity of 3.7%. What is
the holding period return of this bond? Assume semiannual
compounding.
A.
13.33%
B.
15.98%
C.
4.64%
D.
3.70%
E.
8.07%
F.
10.50%

An investor with a 4-year investment horizon purchases a bond
that pays coupons annually at a rate of 7%. At the time of
purchase, the bond has 10 years left to maturity and is selling at
93.2899 per hundred of par , with a YTM of 8%.
Determine the bond's carrying value at the end of the investment
horizon.

An investor, with an investment horizon of 10 years is
considering purchasing a bond with a Macaulay Duration of 12. If
the investor goes through with the purchase she will be subject to
________ risk and be worse off if interest rates ________.
reinvestment; go up
reinvestment; go down
interest rate; go down
none of the above.
What is the Approximate Modified Duration of a 20 year bond,
making semiannual coupon payments, with a coupon rate of 5% selling
at...

A 30-year maturity 10% coupon bond paying coupons semiannually
is callable in 10 years at a call price of $1,200. The bond
currently sells at a yield to maturity of 5%.
a) What is the selling price of the bond at present?
b) What is the yield to call?
c) Suppose that the investor decided to hold the bond only for 5
years. The reinvestment rate of coupon payments is 8.5%. The
forecasted yield to maturity by the end of...

Suppose an investor can purchase a 20 year, 5% coupon bond that
pays interest semi annually and the price of the bond is 97%. The
Par Amount is $100. The yield to maturity is 5.95%. Assume the
investor can reinvest the coupon payments at an annual rate of 3%.
The bond is only held for 5 years and sold at 89%. Compute the
following:
What is the Total Coupon plus Interest on Interest in
Dollars?
What is the (Total Interest...

Mr.
Bond is considering purchasing a bond with 10-year maturity and
$1,000 face value. The coupon interest rate is 8% and the interest
is paid annually. If Mr. Bond requires 11% yield to maturity (YTM)
on the investment, then the price of the bond
is:
$877.11
$773.99
$1,122.87
$823.32

assume you have a one year investment horizon and purchase a
semiannual coupon bond today that pays 9% coupon anually, had a bar
of 1000 matures in 20 years and 10% ytm. If you owned the bond for
exactly one year( exactly 19 of maturity left ) and the bond is
currently yelding 8% to maturity . What is the rate of return?
a- 9.84%
b- -5.24%
c- 10%
d- -11.80%

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 3 minutes ago

asked 6 minutes ago

asked 30 minutes ago

asked 37 minutes ago

asked 44 minutes ago

asked 55 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago