Question

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 bond will be selling to offer a yield of 9%. What is the total return for this bond?

Step 1: Compute the total coupon payments plus the interest in 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 semiannual total return:

Step 5: Obtain the annual total return:

Answer #1

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...

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.

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 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%

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...

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...

5. Suppose that you bought a 14% Drexler bond with time to
maturity of 9 years for $1,379.75 (semiannual coupons, interest
rate=8%). After another ½ year, you sold the bond.
a. Assuming that the required rate of return remained at 8%,
what would the selling price be? What is the rate of return from
this investment?
b. Assuming that the required rate of return decreased to 7.5%,
what would the selling price be? What is the rate of return from...

1. Ahmad Corp. just issued ten-year bonds that make annual
coupon payments of $50. suppose you purchased one of these bonds at
par value ($1,000) when it was issued. Right after your purchase,
market interest rates jumped, and the YTM (interest rate) on your
bond rose to six percent. What is the new price of you bond?
2. Assume a bond matures for $1000 six years from today and has
a 7% coupon rate with semiannual coupons. What is the...

Consider a bond with annual coupon payments. You purchased the
bond when it was originally
issued. Immediately thereafter, the YTM had changed and remained at
this new level
indefinitely. Today, at the end of year 4 (immediately after the
4th coupon payment), your bond
investment has the following characteristics:
Total Interest (Coupons) =
Interest-on-Interest (I2) =
Capital Gains =
Realized Return (annual) =
$5,476.75
$1,047.89
$759.06
13.773973%
Hint: Do not assume any face value or any time to maturity at...

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...

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