Question

PRICING ZERO COUPON BONDS -

(a) Calculate the price of a zero coupon, $1,000 face value, 5-year bond if the appropriate annual discount rate is 12 percent. Calculate your total return if you hold this bond for three years and the discount rate does not change. (INCLUDE FORMULAS USED TO SOLVE PROBLEM IN EXCEL).

EXPECTED RETURN ON T-BILLS -

(b) What is the actual expected return on a US government 12-month, T-bill that is priced at $990, assuming its face value is $1,000? (INCLUDE FORMULAS USED TO SOLVE PROBLEM IN EXCEL).

PRICING BONDS AT A DISCOUNT -

(c) Calculate the price of a 5 percent coupon (annual coupons), $1,000 face value, 5-year bond if the appropriate discount rate is 3 percent. Show your return if you hold this bond for two years and its discount rate doesn't change. (INCLUDE FORMULAS USED TO SOLVE PROBLEM IN EXCEL).

ACTUAL RETURN -

(d) What actual return did you earn if you bought a bond for $1,000, sold it a year later for $1,010, and received a $30 annual coupon the day before you sold it? (INCLUDE FORMULAS USED TO SOLVE PROBLEM IN EXCEL).

Answer #1

Consider the following prices of zero coupon bonds, each with a
face value of $1,000, for different maturities:
Maturity
Price
1
962
2
925
3
889
Consider a bond with maturity of 3 years, a coupon rate of 5%
and face value of $1,000. What is the price of this bond?

Calculate the price of a 5% coupon, $1000 face value, 20-year
bond that pays annual coupons if the appropriate annual discount
rate is 3%. Suppose the annual discount rate on this bond rises to
7% after three years (at the beginning of year 4) and you sell the
bond at the end of that year (at the end of year 4). What return
did you earn for the four years that you held this bond? Do not use
excel or...

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 zero coupon bond has a face value of
$1,000
and matures in
6
years. Investors require a(n)
7.9%
annual return on these bonds. What should be the selling price
of the bond?

You bought a 10-year zero-coupon bond with a face value of
$1,000 and a yield to maturity of 2.7% (EAR). You keep the bond for
5 years before selling it. The price of the bond today is P 0 = F (
1 + r ) T = 1,000 1.027 10 = 766.12
If the yield to maturity is still 2.7% when you sell the bond at
the end of year-5, what is your personal ANNUAL rate of return?

A bond with a $1,000 face value and a 15 percent annual coupon
rate matures in 30 years.
a. Determine the value of the bond to a friend of yours with a
required rate of return of 11%.
b. A zero coupon bond with similar risk is selling for $550. The
bond has a face value of $1,000 and matures in 30 years. Your
friend asks you which bond she should invest in, the zero coupon
bond or the bond...

Q4
5.What is the price of a zero-coupon 24-year maturity bond per
face (par) value of $1,000 if the annual market rates for these
bonds are 5.9%? Answer to the nearest cent, xxx.xx and enter
without the dollar sign.
6.A firm's stock has 50% chance of a 8% rate of return and
a 50% chance of a 23% rate of return. What is the
standard deviation of return for this stock?
Answer as a percent return to the
nearest hundredth of a...

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

You bought a 10-year
zero-coupon bond with a face value of $1,000 and a yield to
maturity of 3.4% (EAR). You keep the bond for 5 years before
selling it.
The price of the bond
today is P0=F(1+r)T=1,0001.03410=P0=F(1+r)T=1,0001.03410= 715.8
If the yield to
maturity is still 3.4% when you sell the bond at the end of year-5,
what is your personal annual rate of return?

A
bond with a $1,000 face value and a 9 percent annual coupon pays
interest annually. The bond matures in 12 years.
A. Determine the value of the bond to a friend of yours with a
required rate of return of 11%?
B. A zero-coupon bond with similar risk is selling for $300.
The bond has a face value of $1,000 and matures in 12 years. Your
friend asks you which bond she should invest in, the zero coupon
bond...

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