Question

A newly issued 10-year maturity, 5% coupon bond making annual coupon payments is sold to the public at a price of $740. The bond will not be sold at the end of the year. The bond is treated as an original-issue discount bond.

a. Calculate the constant yield price. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What will be an investor's taxable income from the bond over the coming year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer #1

**a**.

N=10 (10 - year maturity)

PMT= 50 (5% of 1000(which is the face value of the bond)

PV= $740

FV= $1000

Putting all the value in the financial calculator

we get yield to maturity as 9.06%

or using this formula and putting the values and using a bit of hit and trial we can find the value of YTM

PV= PMT/(1+r)+PMT/(1+r)^2+..............(PMT+FV)/(1+r)^10

**b.** Using the constant yield method, we can
compute the price in one year( when maturity falls to 9 years)

Putting I/Y= 9.06%

and N=9

and all other values remaining the same we get PV= $757.18

which is an increase of 757.18 - 740 =$17.18

Now the total taxable income will be 50+17.1= $67.18

A newly issued 10-year maturity, 10% coupon bond making annual
coupon payments is sold to the public at a price of $933. What will
be an investor’s taxable income from the bond over the coming year?
The bond will not be sold at the end of the year. The bond is
treated as an original issue discount bond. (Round your
answer to 2 decimal places.)

A 30-year maturity bond making annual coupon payments with a
coupon rate of 16.0% has duration of 10.55 years and convexity of
161.7. The bond currently sells at a yield to maturity of 9%. a.
Find the price of the bond if its yield to maturity falls to 8%.
(Do not round intermediate calculations. Round your answer to 2
decimal places.) Price of the bond $ b. What price would be
predicted by the duration rule? (Do not round intermediate...

a. Find the duration of a 6% coupon bond making annual coupon
payments if it has three years until maturity and has a yield to
maturity of 6%. Note: The face value of the bond is $1,000. (Do not
round intermediate calculations. Round your answers to 3 decimal
places.) b. What is the duration if the yield to maturity is 10%?
Note: The face value of the bond is $1,000. (Do not round
intermediate calculations. Round your answers to 3...

A newly issued bond pays its coupons once a year. Its coupon
rate is 4%, its maturity is 10 years, and its yield to maturity is
7%.
a. Find the holding-period return for a one-year
investment period if the bond is selling at a yield to maturity of
6% by the end of the year. (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
Holding-period return
%
b. If you sell the bond after one year when...

A newly issued bond pays its coupons once a year. Its coupon
rate is 4.4%, its maturity is 15 years, and its yield to maturity
is 7.4%.
a.
Find the holding-period return for a one-year investment period
if the bond is selling at a yield to maturity of 6.4% by the end of
the year. (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
Holding-period return
%
b.
If you sell the bond after one year when...

A two-year bond with par value $1,000 making annual coupon
payments of $91 is priced at $1,000.
a. What is the yield to maturity of the bond?
(Round your answer to 1 decimal place.)
YTM =
b. What will be the realized compound yield to
maturity if the one-year interest rate next year turns out to be
(a) 7.1%, (b) 9.1%, (c) 11.1%?(Do not round intermediate
calculations. Round your answers to 2 decimal
places.)
(a)
(b)
(c)

Consider three bonds with 6.70% coupon rates, all making annual
coupon payments and all selling at face value. The short-term bond
has a maturity of 4 years, the intermediate-term bond has a
maturity of 8 years, and the long-term bond has a maturity of 30
years.
e. What will be the price of the 8-year bond if its yield
decreases to 5.70%? (Do not round intermediate calculations. Round
your answers to 2 decimal places.)
f. What will be the price...

Last year Carson Industries issued a 10-year, 13% semiannual
coupon bond at its par value of $1,000. Currently, the bond can be
called in 6 years at a price of $1,065 and it sells for
$1,230.
What is the bond's nominal yield to maturity? Do not round
intermediate calculations. Round your answer to two decimal
places.
%
What is the bond's nominal yield to call? Do not round
intermediate calculations. Round your answer to two decimal
places.
%

Find the duration of a 8% coupon bond making annual
coupon payments if it has three years until maturity and a yield to
maturity of 7.8%. What is the duration if the yield to maturity is
11.8%? (Do not round intermediate calculations. Round your
answers to 4 decimal places.)
YTM
Duration
7.8% YTM

Find the duration of a 4% coupon bond making annual coupon
payments if it has 3 years until maturity and has a yield to
maturity of 4%. What is the duration if the yield to maturity is
6%? Note: The face value of the bond is $1,000. (Do not round
intermediate calculations. Round your answers to 3 decimal
places.)
Duration 4% YTM:
6% YTM:

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 4 minutes ago

asked 20 minutes ago

asked 21 minutes ago

asked 45 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago