Question

A corporate bond has a $1,000 face value and a 5 percent coupon rate (annual payments)...

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).

Homework Answers

Answer #1

a)

b)

Bond should be purchased as required rate is less than the yield to maturity.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
BOND TYPE: Corporate, YIELD-TO-MATURITY: 5 percent ANNUAL COUPON RATE: 5 percent COUPON FREQUENCY: Semi - Annual...
BOND TYPE: Corporate, YIELD-TO-MATURITY: 5 percent ANNUAL COUPON RATE: 5 percent COUPON FREQUENCY: Semi - Annual MATURITY DATE: Today’s Date with the year set to 4 years from now. (i.e. If today is July 21, 2019, then it should be July 21, 2023) PAR VALUE: $1000.00 QUANTITY: 1 SETTLEMENT DATE: Today's date (i.e. July 21, 2019). Compute the price of this bond using the formula, the formula that computes the present value of future cash flows of the bond, using...
A 25-year maturity bond with face value of $1,000 makes annual coupon payments and has a...
A 25-year maturity bond with face value of $1,000 makes annual coupon payments and has a coupon rate of 8.1%. (Do not round intermediate calculations. Enter your answers as a percent rounded to 3 decimal places.) a. What is the bond’s yield to maturity if the bond is selling for $910? b. What is the bond’s yield to maturity if the bond is selling for $1,000? c. What is the bond’s yield to maturity if the bond is selling for...
A 20-year maturity bond with face value of $1,000 makes annual coupon payments and has a...
A 20-year maturity bond with face value of $1,000 makes annual coupon payments and has a coupon rate of 8.8%. (Do not round intermediate calculations. Enter your answers as a percent rounded to 3 decimal places.) a. What is the bond’s yield to maturity if the bond is selling for $980? b. What is the bond’s yield to maturity if the bond is selling for $1,000? c. What is the bond’s yield to maturity if the bond is selling for...
Consider a corporate bond with the face value of $1,000, the coupon rate of 8% per...
Consider a corporate bond with the face value of $1,000, the coupon rate of 8% per annum, paying coupons annually and the remaining term to maturity of 6 years. The current required yield-to-maturity of this bond is 6% per annum. Suppose an investor buys one bond and holds it for two years. At the end of year 2, required yield-to-maturity is expected to rise from 6% to 7% per annum. Find the investor's annual rate of return over his/her 2-year...
A $1,000 face value corporate bond with a 6.5 percent coupon (paid semiannually) has 15 years...
A $1,000 face value corporate bond with a 6.5 percent coupon (paid semiannually) has 15 years left to maturity. It has had a credit rating of BBB and a yield to maturity of 7.2 percent. The firm has recently gotten into some trouble and the rating agency is downgrading the bonds to BB. The new appropriate discount rate will be 8.5 percent. What will be the change in the bond’s price in dollars and percentage terms?
A bond with a face value of $1,000 has annual coupon payments of $100 and was...
A bond with a face value of $1,000 has annual coupon payments of $100 and was issued 10 years ago. The bond currently sells for $1,000 and has 8 years remaining to maturity. This bond's ______________ must be 10%. I. yield to maturity, II. coupon rate a. Neither I not II b. I only c. I and II d. II only
Last year Janet purchased a $1,000 face value corporate bond with an 7% annual coupon rate...
Last year Janet purchased a $1,000 face value corporate bond with an 7% annual coupon rate and a 20-year maturity. At the time of the purchase, it had an expected yield to maturity of 13.05%. If Janet sold the bond today for $1,133.42, what rate of return would she have earned for the past year?
A bond has a face value of $1,000, a coupon rate of 8%, and a maturity...
A bond has a face value of $1,000, a coupon rate of 8%, and a maturity of 10 years.  The bond makes semi-annual coupon payments.  The bond’s yield to maturity is 9%.  In Excel, the =PV formula can be used to find the price of the bond.  Fill in the table with the appropriate values: RATE NPER PMT FV TYPE Repeat problem , but with annual coupon payments. RATE NPER PMT FV TYPE
A bond has a face value of $1,000, a coupon rate of 8%, and a maturity...
A bond has a face value of $1,000, a coupon rate of 8%, and a maturity of 10 years.  The bond makes semi-annual coupon payments.  The bond’s yield to maturity is 9%.  In Excel, the =PV formula can be used to find the price of the bond.  Fill in the table with the appropriate values: RATE NPER PMT FV TYPE
1) A 2-year maturity bond with face value of $1000 makes annual coupon payments of $80....
1) A 2-year maturity bond with face value of $1000 makes annual coupon payments of $80. At a yield to maturity of 8 percent, the bond must be selling for 2) A 2-year maturity bond with face value of $1000 makes annual coupon payments of 8 percent per annum and is currently selling at par. What return will you earn on the bond if you buy it today and sell it at the end of the year when the yield...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT