Question

Currently, the Augusta National 5-year bonds are priced at par and the YTM is 4%. Economists...

  1. Currently, the Augusta National 5-year bonds are priced at par and the YTM is 4%. Economists estimate that there is a 30% chance that yields on similarly rated bonds will fall to 3%, a 30% chance that yields will rise to 5%, and a 40% yields will stay at the current level. Assuming annual coupon payments, what is the expected 'dirty' price of this bond immediately prior to coupon distribution? What would you pay for the bond today? Is the bond trading at a premium/discount? What would you pay for the bond today if the bond is callable at $1,020?
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Coupon 40
Tenure 5
Par value 1000
Expected yield
Chance Yield
30% 3.00%
40% 4.00%
30% 5.00%
Exp yield 4.00%
Price today 1000
Immediately prior to coupon payment i.e. 1 year from now
Price 1040 (Coupon payment is added to price)
Bond is trading at par but just before coupon payment, it is trading at premium
If callable in 5 years at 1020
Price 1016
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
A 5-year, $1,000 face bond with a 3% coupon is currently selling with a 4% YTM...
A 5-year, $1,000 face bond with a 3% coupon is currently selling with a 4% YTM (yield to maturity). What is the purchase price of the bond? Immediately after you purchase the bond, the reinvestment rate in the market drops to 3%. What is your realized yield on your bond investment? What is the duration of the bond in Question? If market yields were to drop by 1%, what is the approximate percentage change in price you would expect, based...
1)There is semiannual compounding bond. What would the YTM be on a 10-year, zero coupon, $1,000...
1)There is semiannual compounding bond. What would the YTM be on a 10-year, zero coupon, $1,000 par value bond that is currently trading at $551.4? 2)Allie Benson observes Samsung 8.25%, 6-year, annual-pay bond trading at 104.34% of par (where par is $100). The bond is callable at 102 in three years. What is the bond’s yield-to-call? 3)A 12-year, 9% annual-pay bond has a par value of $1,000. What is the price of the bond if it has a yield-to-maturity of...
Crow Ltd's bonds are currently priced at $965.80. They have a $1,000 par value and 3...
Crow Ltd's bonds are currently priced at $965.80. They have a $1,000 par value and 3 years to maturity. They pay an annual coupon of 5%. What is the annulaised yield to maturity on this bond. Question 4 options: 3.13% 6.68% 6.27% 5.0%
Consider two bonds. A consol with yield 10%. A two-year coupon bond is selling at par...
Consider two bonds. A consol with yield 10%. A two-year coupon bond is selling at par (i.e. face value) has yield to maturity 10%. Both bonds pay coupons yearly. At the end of the first year, the yields on all bonds fall to 5%. Which bond earns a higher RET?
4. The following is the YTM of five 30 year, 8% coupon, 1000 par value bonds:...
4. The following is the YTM of five 30 year, 8% coupon, 1000 par value bonds: BOND / TYPE S&P Ratings Yield to Maturity 1 / US Govt AAA 8.00 2 / Corporate AAA Not Available 3 / Corporate B 9.00 4 / Corporate CC Not Available 5 / Corporate D 10.00 a. Your boss asks you which to give him a range of possible YTM's for the No 2 and the No 4 bond. What would be your best...
Bananic Ltd. raised $30 million by issued a 10-year, 7 percent semi-annual coupon bonds one year...
Bananic Ltd. raised $30 million by issued a 10-year, 7 percent semi-annual coupon bonds one year ago. The bond was rated grade A when issued at par. Today, the yield-to-maturity (YTM) of the bond yields an effective annual rate of return of 12 percent. a) How many bonds did Bananic issue? e) You friend, Mary, tells you that a speculator (i.e. an investor who speculates on short term profits) should purchase a higher coupon bond rather than a lower coupon...
Need a step by step to understand. Jill has a 30-year bond that has a 6%...
Need a step by step to understand. Jill has a 30-year bond that has a 6% coupon rate that would pay interest in a semiannual method. It is trading with a yield-to-maturity of 5%. The bond will become callable in 4 years at a price of $1,150. a) Now what would be the current price of the bond? b) Finally, what would be the bonds yield-to-call?
The City of Houston issued 30-year bonds 5 years ago; the bond that has a 4%...
The City of Houston issued 30-year bonds 5 years ago; the bond that has a 4% coupon, has a par value of $1,000 and is selling today at $900. What is the yield to maturity on this bond?
An investor purchased the following 5 bonds. Each bond had a par value of $1,000 and...
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...
a) You are considering investing in bonds and have collected the following information about the prices...
a) You are considering investing in bonds and have collected the following information about the prices of a 1-year zero-coupon bond and a 2-year coupon bond. - The 1-year discount bond pays $1,000 in one year and sells for a current price of $950. - The 2-year coupon bond has a face value of $1,000 and an annual coupon of $60. The bond currently sells for a price of $1,050. i) What are the implied yields to maturity on one-...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT