Question

1)Assume that you pay ​$918.16 for a​ long-term bond that carries a coupon of 6.5​%. Over the course of the next 12​ months, interest rates drop sharply. As a​ result, you sell the bond at a price of ​$1 comma 035.98. a. Find the current yield that existed on this bond at the beginning of the year. What was it by the end of the​ one-year holding​ period? b. Determine the holding period return on this investment. ​(Hint​: See Chapter 5 for the HPR​ formula.)

2)You are considering investing $860 in Higgs B. Technology Inc. You can buy common stock at $23.89 per​ share; this stock pays no dividends. You can also buy a convertible bond​ ($1,000 par​ value) that is currently trading at $860 and has a conversion ratio of 34. It pays $51 per year in interest. If you expect the price of the stock to rise to ​$35.68 per share in 1​ year, which instrument should you​ purchase?

Answer 1