Question

Consider a bond that pays 6% annual coupon on a face value of $1000 and has 5 years to maturity. Suppose you buy the bond at a time when its yield to maturity is 10%. Assumer further that immediately after you buy the bond, the market interest rate YTM declines to 8%. You hold the bond for two years and sell it at the end of the second year when YTM is still 8%.

a) Calculate the annualized two year Holding Period Return or the HPR?

b) If the tax rate on interest income is 40% and the tax rate on capital gain is 20%, calculate the after tax annualized two year holding period return?

Answer #1

You just bought a newly issued bond which has a face value of
$1,000 and pays its coupon once annually. Its coupon rate is 5%,
maturity is 20 years and the yield to maturity for the bond is
currently 8%.
Do you expect the bond price to change in the future when the
yield stays at 8%? Why or why not? Explain. (No calculation is
necessary.)
2 marks)
Calculate what the bond price would be in one year if its...

a) An HSBC bond has a face value of 1000, a coupon rate of 8%, 3
years until maturity and a yield to maturity of 7%. Calculate bond
duration. D= ? *[cash flowt/(1+YTM)t]}/price of bond where t is
time to maturity and YTM stands for yield to maturity. N.B: You
need to show how you have calculated duration. A single value will
not suffice.
b) HSBC has issued a 9-year bond with YTM of 10% and duration of
7.194 years....

A corporate bond pays interest twice a year and has 16 years to
maturity, a face value of $1,000 and a coupon rate of 5.8%. The
bond's current price is $1,353.74. It is callable starting 10 years
from now (years to call) at a call price of $1,124.
1.What is the bond's (annualized) yield to maturity?
2.What is the bond's (annualized) yield to call?
3. If you buy the bond today and hold it as long as possible,
which rate...

5. SupPose you buy a five-year zero-coupon Treasury bond for
$800 per $1,000 face value. Answer the following questions: (a)
What is the yield to maturity (annual compounding) on the bond? (b)
Assume the yield to maturity on comparable zeros increases to 7%
immediately after purchasing the bond and remains there. Calculate
your annual return (holding period yield) if you sell the bond
after one year. (c) Assume yields to maturity on comparable bonds
remain at7%, calculate your annual return...

If a bond has face value $1000, annual coupon rate of 10% is
bought for $900 and sold 2 years later for $1100 what is holding
period return? Annualized return?

On the issue date, you bought a 30-year maturity, 8% semi-annual
coupon bond. The bond then sold at YTM of 7%. Now, five years
later, the similar bond sells at YTM of 6%. If you hold the bond
now, what is your realized rate of return for the 5-year holding
period? (do not solve using excel)

You buy a bond with a par value of $1000 and a coupon rate of 8%
with 18 coupons remaining. You hold the bond and receive 11
coupons. If the bond had a YTM of 8.2% when you bought it and 9.1%
when you sold it, what was your annual holding period ROR?

1. A 9% semiannual coupon bond matures in 6 years. The bond has
a face value of $1,000 and a current yield of 8.7482%. What are the
bond's price and YTM? (Hint: Refer to Footnote 6 for the definition
of the current yield and to Table 7.1) Do not round intermediate
calculations. Round your answer for the bond's price to the nearest
cent and for YTM to two decimal places.
Bond's price:
YTM:
2.
Harrimon Industries bonds have 4 years...

A bond has a 10 percent coupon rate, makes annual payments,
matures in 12 years, and has a yield-to-maturity of 7 percent.
1. Given this: a. What is the price of the bond today? b. What
is the bond’s current yield? c. Based on the yield-to-maturity and
the current yield, what is the bond’s expected capital gains yield
over the next year?
2. One year from now the bond will have 11 years until maturity.
Assume market interest rates remain...

A.
You own a bond with the following features:
Face value of $1000, Coupon rate of 5% (annual) 8 years to
maturity. The bond is callable after 4 years with the call price of
$1,058.
If the market interest rate is 4.17% in 4 years when the bond
can be called, if the firm calls the bond, how much will it save or
lose by calling the bond? State your answer to the nearest penny
(e.g., 84.25). If there...

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