Question

An investor has the following two options:

- To buy a two-year $1,000 zero-coupon bond at a market price of $860, or:
- To buy a two-year $1,000 bond with an annual interest of 3% at a market price of $900.

Assuming annual coupon payments, which option do you think the investor should choose? Explain why.

Answer #1

**a. Yield is computed as follows:**

**= (Par value / Market price) ^{1 / n} -
1**

= ($ 1,000 / $ 860) ^{1 / 2} - 1

**= 7.83%**

**b. The yield is computed as follows:**

**Plug the below variables in the financial calculator as
follows:**

FV = 1,000

PV = - 900

PMT = 30 (3% x 1,000)

N = 2

**Finally press CPT and then I/Y. It will give I/Y equal
to 8.66% Approximately**

**You can also use the below excel as
follows:**

**= RATE(N,PMT,PV,FV)**

**= RATE(2,30,-900,1000)**

**It will also give I/Y equal to 8.66%**

**So, option b is preferred since the yield is
higher.**

**Feel free to ask in case of any query relating to this
question**

An investor considers investing 100 000 TL for the next year.
This investor has 3 options. The first option is to buy a
government bond that sells 100 TL. The par value of this government
bond is also 100 TL and the remaining maturity is 1 year. This
government bond pays %20 annual coupon interest. The second option
is to buy a commercial paper which sells 2200 TL discount. The par
value is 10 000 TL and the maturity is...

An investor purchases a 2-year zero-coupon bond with par value
of $1,000 at $960. The implied interest earned on the bond is
closest to:
A) $0
B) $20
C) $40
D) None of the above. Interest should always be denoted in % not
dollars,
E) Unable to calculate because the discount rate is missing

7. Suppose that you buy a 5-year zero-coupon bond today with a
face value of $100 and that the yield curve is currently flat at 5%
pa nominal. Suppose that immediately after purchasing the bonds,
the yield curve becomes flat at 6% pa nominal. Assuming semi-annual
compounding and that the bond is sold after 3 years, what is the
annualized holding period yield on this bond?
A. 6%
B. 7.13%
C. 8.997%
D. 9.433%
E. 4.34%
8. Suppose that you...

1. A 9-year zero coupon bond has a yield to maturity of
11.8 percent, and a par value of $1,000. What is the
price of the bond?
2. A 7-year bond has a 8 percent coupon rate with the interest
paid in semi annual payments. The yield to maturity of
the bond is 2.3 percent, and a face value of
$1,000. What is the price of the bond?
3. A 12-year bond has a 9 percent annual coupon, a yield to
maturity of...

"An investor just purchased a 5-year $1,000 par value bond. The
coupon rate on this bond is 10% annually, with interest paid every
year. If the investor expects to earn 12% simple rate of return,
how much the investor should pay for it?"
Please explain the process thoroughly.

Suppose the price of a 1-year 5%-coupon bond is $1,000 and the
price of a 2-year 5%-coupon bond is $1027.81. Using bootstrapping,
what is the two-year zero-coupon spot rate? Each bond has a face
value of $1,000 and makes annual coupon payments.

A "zero coupon bond" (or just "zero") is a bond, that does not
pay any interest, it just pays the face value when it matures. Of
course nobody would purchase a bond without interest, that's why
zero coupon bonds are sold at a discount.
Suppose you are given the following information about the
current prices of zero coupon bonds:
bond:
price
1-year zero, face value $1,000
$909.09
2-year zero, face value $1,000
$826.45
3-year zero, face value $1,000
$718.65
I.e....

A corporate bond has a $1,000 face value and a 5 percent
coupon rate (annual payments) maturing in 3 years.
a. If the yield to maturity is 7%, what is the bond
price?
b. An investor believes an appropriate rate to discount the
future cash flow of the bond should be 6%, should the investor buy
or sell the bond? Discuss the reason(s).

1. What is the duration of a 10-year zero-coupon bond with a par
value of $1,000?
2. An investor has a 15-year maturity, 8% coupon, 8% yield bond
with a duration of 10 years and a convexity of 135.5. If the
interest rate were to fall 75 basis points, what is your predicted
new price for the bond (including convexity)?

An investor purchased the following 5 bonds. Each bond had a par
value of $1,000 and an 8% yield to maturity on the purchase day.
Immediately after the investor purchased them, interest rates fell,
and each then had a new YTM of 6%. What is the percentage change in
price for each bond after the decline in interest rates? Fill in
the following table. Round your answers to the nearest cent or to
two decimal places. Enter all amounts as...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 2 minutes ago

asked 2 minutes ago

asked 2 minutes ago

asked 3 minutes ago

asked 3 minutes ago

asked 3 minutes ago

asked 3 minutes ago

asked 8 minutes ago

asked 8 minutes ago

asked 8 minutes ago

asked 9 minutes ago