Assume Northeast Healthcare sold bonds that had a ten-year maturity, an 8 percent coupon rate with annual payments, and a $1,000 par value. Suppose that two years after the bonds were issued, the required interest rate fell to 6 percent. What would be the bonds' value? O $1,298.56 O $760.06 $1.124.20 O None of the above

Assume Northeast Healthcare sold bonds that had a ten-year maturity, an 8 percent coupon rate with annual payments, and a $1,000 par value. Suppose that two years after the bonds were issued, the required interest rate fell to 6 percent. What would be the bonds' value? O $1,298.56 O $760.06 $1.124.20 O None of the above

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose Ford sold an issue of bonds with a 14-year maturity, a $1400 par value, a 10% coupon rate, and semiannual interest payments. Please use the factor formulae to solve the questions below: (a) Two years after the bonds were issued (after the 4thcoupon amount payments), the going rate of interest on bonds such as these fell to 7%. At what price would the bonds sell? Sell price = $ %3D (keep 2 decimal places) (b) Suppose that, two years after the bonds' issue (after the 4thcoupon amount payments), the going interest rate had risen to 14%. At what price would the bonds sell? Sell price = $ (keep 2 decimal places)
Suppose Ford sold an issue of bonds with a15-year maturity, a $1,000 par value, a 12% couponrate, and semiannual interest payments.(a) Two years after the bonds were issued, thegoing rate of interest on bonds such as thesefell to 9%. At what price would the bonds sell?(b) Suppose that, two years after the bonds’ issue,the going interest rate had risen to 13%. At whatprice would the bonds sell?(c) Today, the closing price of the bond is $783.58.What is the effective current yield?
A firm issued bonds that will pay $1000 with certainty in one year. The market price was $970. If you purchased one of those bonds, what is the yield in percent, on the bond held to maturity? Round to one decimal place and do not enter the % sign. If your answer is 1.333%, enter 1.3. If your answer is 1.666%, enter 1.7. If appropriate, remember to enter the sign.
Suppose you sold an issue of bonds with a 5-year maturity, a $1,000 par value, a 10% coupon rate, and annual interest payments according to the following data. 2. a. one year after the bonds were issued, the going rate of interest on bonds such as these fell to 6%. At what price would the bonds sell b. two years after the initial issuance, the going interest rate had risen to 12%. At what price would the bonds sell
Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 8.90%. Also, corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10- year bonds is 1.15%. What is the default risk premium on corporate bonds? A) 3.08% B) 3.35% 2.95% D) 4.12% E) 3.12%
Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 5 Required: a. Calculate the forward rate of interest for each year. b. How could you construct a 1-year forward loan beginning in year 3? c. How could you construct a 1-year forward loan beginning in year 4? Required A Price $940.93 Complete this question by entering your answers in the tabs below. 868.39 800.92 735.40 670.48 Required B Maturity (years) 2 3 Calculate the forward rate of interest for each year. Note: Round your answers to 2 decimal places. Required C Forward Rate % % Prov 12 of 12 Next
2. ABC Corporation issued P1,000,000 in 8% bonds, maturing in ten years and paying interest semi-annually. The bonds were issued at face value. What can you assume about the interest rates at the time the bonds were issued? a. The market rate for this bond was about 8%. b. The nominal rate of interest was about 8%. c. The coupon rate on the bond includes no premium for credit risk. d. The risk-free interest rate is about 6%.
Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 5 Price $983.78 865.89 797.92 732.00 660.24 Required: a. Calculate the forward rate of interest for each year. b. How could you construct a 1-year forward loan beginning in year 3? c. How could you construct a 1-year forward loan beginning in year 4?
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Schallheim Corporation’s outstanding bonds have a $1,000 par value, a 14 percent semiannual coupon, 6 years to maturity, and an 11 percent yield to maturity (YTM). What is the bond’s price? a. $1,129.28 b. $1,126.92 c. $1,074.93 d. $740.31 e. $1,000.00
Suppose Hillard Manufacturing sold an issue of bonds with a 12-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 5%. At what price would the bonds sell?
‘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 thepercentage 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 the nearest cent and percentage answers totwo decimal places. Price @ 11% Price @ 7% Percentage Change10-year, 10% annual coupon $ $ %10-year zeroS-year zero 30-year zero$100 perpetuity

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