Question

How much would an investor lose the first year if she purchased a 30-year zero-coupon bond with a $1,000 par value and a 9.5% yield to maturity, only to see market interest rates increase to 11% one year later?

Answer #1

Sol:

Par value (FV) = $1000

Period (n) = 30 years

Yield to maturity (r) = 9.5% in first year, After 1 year 11%

To determine how much investor will lose in the first year:

Present value (PV) at year zero with 9.5% rate = FV / ( 1 + r)^n

Present value (PV) at year zero = 1000 / ( 1 + 9.5%)^30

Present value (PV) at year zero = 1000 / ( 1.095)^30

Present value (PV) at year zero = $65.70

Present value (PV) at year 29th with 11% rate = FV / ( 1 + r)^n

Present value (PV) at year 29th with 11% rate = 1000 / ( 1 + 11%)^29

Present value (PV) at year 29th with 11% rate = 1000 / ( 1.11)^29

Present value (PV) at year 29th with 11% rate = 48.49

**Amount investor lose in the first year = $65.90 - $48.49
= $17.41**

**Therefore amount investor lose in the first year will be
$17.41**

14. How much would be the loss in price if an investor purchased
a 15-year bond with a $1,000 par value, a 6% coupon paid annually
and a 7% yield to maturity at the beginning, only to see market
interest rates increase to 15% one year later?
-$339.30
-$424.12
-$296.89
-$466.54

One year ago, an investor purchased a 10-year, $1,000
par value, 8% semiannual coupon bond with an 8% yield to maturity.
Now, one year later, interest rates remain unchanged at 8%. If the
investor sells the bond today (immediately after receiving the
second coupon payment, and with no transaction costs), he will
have:
A. a capital gain of $80.
B. a capital loss of $80.
C. no capital gain or loss.

You have just purchased a 11-year zero-coupon bond with a yield
to maturity of 9% and a par value of $1,000. What would your rate
of return at the end of the year be if you sell the bond? Assume
the yield to maturity on the bond is 10% at the time you sell.

An investor bought a 20-year bond at par with a semiannual
coupon and a 3% yield-to-maturity. One year later, due to a decline
in interest rates, she sold the bond at a 2% yield to maturity.
What was her capital gain or loss?
15.7%
8.6%
18.7%
16.4%
14.3%

An investor purchased the following five bonds. Each bond had a
par value of $1,000 and a 11% yield to maturity on the purchase
day. Immediately after the investor purchased them, interest rates
fell, and each then had a new YTM of 7%. What is the percentage
change in price for each bond after the decline in interest rates?
Fill in the following table. Enter all amounts as positive numbers.
Do not round intermediate calculations. Round your monetary answers
to...

An investor purchased the following five bonds. Each bond had a
par value of $1,000 and a 9% 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. Enter all amounts as positive numbers. Do not
round intermediate calculations. .
Price @ 9% Price...

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...

1)
how much should you pay for a $1000 bond with 6% coupon, annual
payments, and 16 years to maturity if the interested rate is 6%?
2) how much should you pay for a $1000 zero coupon bond with 5
years to maturity if the interest rate is 5%?
3) what is the rate of return for an investor who pays $1061
for a 3 year bond with an annual coupon payment of 6% and sells the
bond 1 year...

INTEREST RATE SENSITIVITY
An investor purchased the following 5 bonds. Each bond had a par
value of $1,000 and an 10% 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...

An investor purchased the following five bonds. Each bond had a
par value of $1,000 and a 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. Enter all amounts as positive numbers. Do not
round intermediate calculations. Round your monetary answers to...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 2 minutes ago

asked 6 minutes ago

asked 8 minutes ago

asked 29 minutes ago

asked 32 minutes ago

asked 32 minutes ago

asked 32 minutes ago

asked 36 minutes ago

asked 39 minutes ago

asked 49 minutes ago

asked 55 minutes ago

asked 55 minutes ago