Question

A bondholder purchased an 10 percent coupon, $1,000 par three-year bond at a 7 percent yield....

A bondholder purchased an 10 percent coupon, $1,000 par three-year bond at a 7

percent yield. Interest rates then immediately fell to 6 percent and his bond was called

at a price of $1,080. He reinvested his money and earned 6 percent on the $1,080 for

three years.

  1. Did the call help or hurt the bondholder?
  2. What was his three-year rate of return on his original investment?
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
our firm has a 7-year, RM 1,000 par outstanding bond with an 8.25 percent annual coupon....
our firm has a 7-year, RM 1,000 par outstanding bond with an 8.25 percent annual coupon. The current yield to maturity is 7.1 percent. The bond can be called in three years at a call price of RM 1,020. Assume there will be no change in the term structure of interest rates, what is the estimated yield to call of this bond?
You purchased a $1,000 par value 20-year 4% coupon bond with semi-annual payments for $1,000. Immediately...
You purchased a $1,000 par value 20-year 4% coupon bond with semi-annual payments for $1,000. Immediately after the purchase, interest rates increased and the yield to maturity and coupon reinvestment rate increased to 6%. (the coupons themselves stayed at 4%) Interest rates and the yield to maturity remain at 6% and you sell the bond 5 years later, having reinvested the coupons at 6%. How much is in your account (proceeds from bond sale and value of all coupons after...
A 14-year, $1,000 par value zero-coupon rate bond is to be issued to yield 7 percent....
A 14-year, $1,000 par value zero-coupon rate bond is to be issued to yield 7 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. What should be the initial price of the bond? (Assume annual compounding. Do not round intermediate calculations and round your answer to 2 decimal places.) b. If immediately upon issue, interest rates dropped to 6 percent, what would be the value of the zero-coupon...
A 10-year, 6% semiannual coupon bond, with a par value of $1,000 is 1 year old,...
A 10-year, 6% semiannual coupon bond, with a par value of $1,000 is 1 year old, and may be called in another 3 years at a call price of $1,045. Assume you purchase this bond today for $1,050. What is the nominal yield to call? 5.57 percent 5.39 percent 5.05 percent 5.22 percent
One year ago, an investor purchased a 10-year, $1,000 par value, 8% semiannual coupon bond with...
One year ago, an investor purchased a 10-year, $1,000 par value, 8% semiannual coupon bond with an 8% yield to maturity. Now, one year later, interest rates remain unchanged at 8%. If the investor sells the bond today (immediately after receiving the second coupon payment, and with no transaction costs), he will have: A. a capital gain of $80. B. a capital loss of $80. C. no capital gain or loss.
A 25-year, $1,000 par value zero-coupon rate bond is to be issued to yield 8 percent....
A 25-year, $1,000 par value zero-coupon rate bond is to be issued to yield 8 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. What should be the initial price of the bond? (Assume annual compounding. Do not round intermediate calculations and round your answer to 2 decimal places.) b. If immediately upon issue, interest rates dropped to 7 percent, what would be the value of the zero-coupon...
You just purchased a $1,000 par value, 10-year, 9.3 percent annual coupon bond that pays interest...
You just purchased a $1,000 par value, 10-year, 9.3 percent annual coupon bond that pays interest on a semiannual basis. The bond sells for $974. What is the bond’s nominal yield to maturity (enter answer as a percentage)?
A 10-year, 12 % semiannual coupon bond with a par value of $1,000 may be called...
A 10-year, 12 % semiannual coupon bond with a par value of $1,000 may be called in 4 years, at a call price of $1,060. The bond sells for $1,300. (Assume the bond has just been issued). a. What is the bond’s yields to maturity? (15 points) b. What is the bond’s current yield? (15 points) c. What is the bond’s capital gain or loss yield in the first year in percent? (15 points) d. What is the bond’s yield...
Milner's Tools has a 9-year, 7 percent annual coupon bond outstanding with a $1,000 par value....
Milner's Tools has a 9-year, 7 percent annual coupon bond outstanding with a $1,000 par value. Carter's Tools has a 10-year, 6 percent annual coupon bond with a $1,000 par value. Both bonds currently have a yield to maturity of 6.5 percent. If the market yield increases to 6.75 percent, (1) What is the percentage change in Milner’s bond value? (2) What is the percentage change in Carter’s bond value? (3) Whose bond has higher interest rate risk? Why?
An investor purchased the following five bonds. Each bond had a par value of $1,000 and...
An investor purchased the following five bonds. Each bond had a par value of $1,000 and a 9% 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. Enter all amounts as positive numbers. Do not round intermediate calculations. . Price @ 9%   Price...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT