This tutorial please… need clear formulas Tutorial1. Four years ago, your firm issued $1,000 par, 25-year bonds, with a 7 percentcoupon rate and a 10 percent call premium.a. If these bonds are now called, what is the approximate yield to call for theinvestors who originally purchased them?b. If these bonds are now called, what is the actual yield to call for theinvestors who originally purchased them at par?c. If the current interest rate on the bond is 5 percent and the bonds were notcallable, at what price would each bond sell?2. Assume that you purchased an 8 percent, 20-year, $1,000 par, semiannualpayment bond priced at $1,012.50 when it has 12 years remaining until maturity.Compute:a. Its promised yield to maturityb. Its yield to call if the bond is callable in three years with an 8 percentpremium3. Calculate the Macaulay duration of an 8 percent, $1,000 par bond that matures inthree years if the bonds YTM is 10 percent and interest is paid semiannually.Calculate this bond's duration.4. Two years ago, you acquired a 10-year zero coupon, $1,000 par value bond at a12 percent YTM. Recently, you sold this bond at an 8 percent YTM, Usingsemiannual compounding, compute the annualized horizon return for thisinvestment.

Since you have posted multiple questions, we will provide the solutiononly to the first question as…

1. Four years ago, your firm issued $1,000 par, 25-year bonds, with a 7 percent coupon rate and a 10 percent call premium. a. If these bonds are now called, what is the approximate yield to call for the Investors who originally purchased them? b. If these bonds are now called, what is the actual yield to call for the investors who originally purchased them at par? c. If the current interest rate on the bond is 5 percent and the bonds were not callable, at what price would each bond sell?

1. Four years ago, your firm issued $1,000 par, 25-year bonds, with a 7 percent coupon rate and a 10 percent call premium. a. If these bonds are now called, what is the approximate yield to call for the Investors who originally purchased them? b. If these bonds are now called, what is the actual yield to call for the investors who originally purchased them at par? c. If the current interest rate on the bond is 5 percent and the bonds were not callable, at what price would each bond sell?

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

See similar textbooks

Similar questions

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 Show Transcribed Text B) How could you construct a 1-year forward loan beginning in year 3? (Face Value) C) How could you construct a 1-year forward loan beginning in year 4? (Face Value) Required A Required B Complete this question by entering your answers in the tabs below. Face value Rate of synthetic loan → Show Transcribed Text Price $ 970.93 898.39 836.92 How could you construct a 1-year forward loan beginning in year 3? Note: Round your Rate of synthetic loan answer to 2 decimal places. Required A 776.20 685.42 Required B Face value Rate of synthetic loan Required C 7.85 % Required C How could you construct a 1-year forward loan beginning in year 4? Note: Round your Rate of synthetic loan answer to 2 decimal places. Ċ 13.29 %
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
You consider purchasing bonds today. There are three future time periods, t = 1, 2, 3, wherebonds can have payoffs. Consider the following 4 bonds: a) One amortizing bond paying $40 each period trading at a price of $104.95.b) One amortizing bond paying less in early periods and more in later periods. The bond pays $40 inperiod 1, $30 in period 2, and $20 in period 3. This bond is trading at a price of $80.61.c) One coupon bond with a 11% coupon rate trading at a price of $96.08.d) One zero coupon, which currently trades at a price of $77.22. Suppose you can take long or short positions in any bond, and also lend or borrow money. Is it possibleto construct an arbitrage trade where you pay nothing upfront, and get a certain payoff in period 1? If so,describe how you would do this trade.
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?
(Bond valuation) You own a bond that pays $120 in annual interest, with a $1,000 par value. It matures in 20 years. Your required rate of return is 11 percent a. Calculate the value of the bond. b. How does the value change if your required rate of return (1) increases to 15 percent or (2) decreases to 7 percent? c. Explain the implications of your answers in part b as they relate to interest rate risk, premium bonds, and discount bonds. d. Assume that the bond matures in 4 years instead of 20 years. Recompute your answers in part b. e. Explain the implications of your answers in part d as they relate to interest rate risk, premlum bonds, and discount bonds.
You are considering an investment in 30-year bonds issued by Green Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 5.25 percent. Your broker has determined the following information about economic activity and Green Corporation bonds: Real risk-free rate = 2.25% Default risk Premium = 1.15% Liquidity risk premium = 0.50% Maturity risk premium = 1.75% a) What is the inflation premium? b) What is the fair interest rate on Green Corporation 30-year bonds?
Suppose you purchase a T-bills that is 125 days from maturity for $9,765. The T-bills has a face value of $10,000.a. Calculate the T-bills’s quoted discount rate. b. Calculate the T-bills’s annualized rate.c. Who are the major issuers of and investors in money market securities?
You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 1.50 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.50% Default risk premium = 1.40% Liquidity risk premium = 1.00% Maturity risk premium = 2.00% a. What is the inflation premium? b. What is the fair interest rate on Moore Corporation 30-year bonds? Note: Round your percentage answers to 2 decimal places (ie., 0.1234 should be entered as 12.34). Expected inflation premium Fair interest rate
(Bond valuation) You own a bond that pays $120 in annual interest, with a $1,000 par value. It matures in 20 years. Your required rate of return is 10 percent. a. Calculate the value of the bond. b. How does the value change if your required rate of return (1) increases to 15 percent or (2) decreases to 6 percent? c. Explain the implications of your answers in part b as they relate to interest rate risk, premium bonds, and discount bonds. d. Assume that the bond matures in 3 years instead of 20 years. Recompute your answers in part b. e. Explain the implications of your answers in part d as they relate to interest rate risk, premium bonds, and discount bonds. a. If your required rate of return is 10 percent, what is the value of the bond? $ (Round to the nearest cent.)
3. Assume you purchased a bond for $9,186. The bond pays $300 interest every six months. You sell the bond after 18 months for $10,000. Calculate the following: a. Income. b. Capital gain (or loss). c. Total return in dollars and as a percentage of the original investment. Review Only Click the icon to see the Worked Solution. a. The current income is $ (Round to the nearest dollar.) b. The capital gain (or loss) is $ (Enter a loss as a negative number and round to the nearest dollar.) c. The total return in dollars is $ (Round to the nearest dollar.) The total return as a percentage of the original investment is %. (Enter as a percentage and round to two decimal places.)
Bonds and Stocks ValuationA) Sintokyo Berhad’s seven-year RM1,000 par bonds pay 9 percent interest. Your required rate of return is 7 percent. The current market price for the bond is RM1,100.i. Determine the expected rate of returnii. What is the value of the bonds to you given your required rate of return ?iii. Should you purchase the bond at the current market price?B) The common stock of AMT paid RM1.32 in dividends last year. Dividends are expected to grow at an 8 percent annual rate for an indefinite number of years.i. If AMT’s current market price is RM23.50, what is the stock’s expected rate of return?ii. If your required rate of return is 10.5 percent, what is the value of the stock for you?iii. Should you make the investment, and why?QUESTION 2 – Cost of CapitalCompute the
You are considering an investment in 30-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T-bills are currently earning 1.25 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds: Real risk-free rate = 0.75% Default risk premium = 1.15% Liquidity risk premium = 0.50% Maturity risk premium = 1.75% What is the inflation premium? What is the fair interest rate on Moore Corporation 30-year bonds?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS