2. * A bond with a redemption value of £100 pays coupons of £1.50 semi-annually (i.e. the bond holder receives £1.50 twice per year), with the first coupon due in half a year. The bond will mature in ten years' time. It is currently selling for £95.25. (a) Without making any calculations can you determine which is greater: the redemption yield or the interest yield? Why? (b) Compute the redemption yield (annual effective), using a method of your choice, and explaining your calculation. You may find the videos at the end of Section 3.2 helpful.

2. * A bond with a redemption value of £100 pays coupons of £1.50 semi-annually (i.e. the bond holder receives £1.50 twice per year), with the first coupon due in half a year. The bond will mature in ten years' time. It is currently selling for £95.25. (a) Without making any calculations can you determine which is greater: the redemption yield or the interest yield? Why? (b) Compute the redemption yield (annual effective), using a method of your choice, and explaining your calculation. You may find the videos at the end of Section 3.2 helpful.

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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2. * A bond with a redemption value of £100 pays coupons of £1.50 semi-annually (i.e. the bond holder receives £1.50 twice per year), with the first coupon due in half a year. The bond will mature in ten years' time. It is currently selling for £95.25. (a) Without making any calculations can you determine which is greater: the redemption yield or the interest yield? Why? (b) Compute the redemption yield (annual effective), using a method of your choice, and explaining your calculation. You may find the videos at the end of Section 3.2 helpful.
A bond with a redemption value of £100 pays coupons of £1.50 semi-annually (i.e. the bond holder receives £1.50 twice per year), with the first coupon due in half a year. The bond will mature in ten years’ time. It is currently selling for £95.25. 1 (a) Without making any calculations can you determine which is greater: the redemption yield or the interest yield? Why? (b) Compute the redemption yield (annual effective), using a method of your choice, and explaining your calculation.
(b)You purchase the $110 bond today and sell it off next year at $108. What is its one-year rate of return (assume the bond’s coupon rate is 5% and its face value is $100)? If the expected inflation over the course of the year is 2%, what would the ex-ante real rate of return be for the bond on part (b)?
Suppose that you buy a two-year 7.3% bond at its face value. a-1. What will be your total nominal return over the two years if inflation is 2.3% in the first year and 4.3% in the second? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Nominal return a-2. What will be your real return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Real return % % Real return Nominal return b. Now suppose that the bond is a TIPS. What will be your total 2-year real and nominal returns? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) 1%
Hi can teach me how to solve the question step by step? TQ 2. suppose that the market interest rate is 5%. calculate the present value of the following. a. A coupon bond with an annual coupon payment of $135 and a face value of $1500 that matures in five years. b. A discount bond with a face value of $5000 that matures in one year. c. A fixed payment loan with annual payments of $163 that matures in three years.
Suppose that you buy a TIPS (inflation-indexed) bond with a 1-year maturity and a coupon of 2% paid annually. Assume you buy the bond at its face value of $1,000, and the inflation rate is 10%. a. What will be your cash flow at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What will be your real return? c. What will be your nominal return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Let's denote the price of a nonmaturing bond (called a consol) as P. The equation that indicates this price is Pn =-, where I is the annual net income the bond generates and r is the nominal market interest rate. a. Suppose that a bond promises the holder $200 per year forever. The nominal market interest rate is 6 percent. Calculate the bond's current price: S. (Round your answer to the nearest whole dollar.)
In this problem we are going to calculate bond prices and returns Suppose that the yield on a 3 year note is 2.5%. a) Calculate the price of the 3 year note (face value = $1000) with three annual coupon payments (after year 1, after year 2, after year 3) of $30, i.e., the coupon rate is 3.0%. b) Is this note selling at a discount or premium? Explain. Suppose that after one year and after you receive one coupon payment, you decide to sell your note. Your note is now a two year note with one coupon payment after 1 year and another after year 2. Consider the following two scenarios: Scenario #1 - interest rates on what is now a two year note (i.e., your note) have fallen to 1.00% Scenario #2 - interest rates on what is now a two year note (i.e., your note) have risen to 4% c) given scenan d) Calculate the price that you can sell your note for under scenario #1 and the associated rate of return when you sell your note Calculate the price that you can sell your note for under scenario #2…
(a) You hold a two period bond that pays a coupon C at the end of each period. The interest rate is expected to be i for each of these periods. What is the price of the bond today? [1%] (b) The interest rate changes to i 0 in the second period. Evaluate the rates of return when you sell the bond after one period in the case of the change being (i) anticipated (ii) unanticipated. [9%]
Suppose that you buy a 1-year maturity bond with a coupon of 7% paid annually. If you buy the bond at its face value, what real rate of return will you earn if the inflation rate is 4%? 6%? 8%? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Negative amount should be indicated by a minus sign.)
Bond A pays Rs. 80,000 in 20 years. Bond B pays Rs. 80,000 in 40 years. (To keep things simple, assume these are zero-coupon bonds, which means the Rs80,000 is the only payment the bond holder receives.) a. If the interest rate is 3.5 percent, what is the value of each bond today? Which bond is worth more? Why? (Hint: You can use a calculator, but the rule of 70 should make the calculation easy.) b. If the interest rate increases to 7 percent, what is the value of each bond? Which bond has a larger percentage change in value? c. Based on the example above, complete the two blanks in this sentence: “The value of a bond [rises/falls] when the interest rate increases, and bonds with a longer time to maturity are [more/less] sensitive to changes in the interest rate.”
c. What will be the yield to maturity on two-year zeros? (Do not round intermediate calculations. Round your answers to 2 decimal places.) YTM % d. If you purchase a two-year zero-coupon bond now, what is the expected total rate of return over the next year? (Hint. Compute the current and expected future prices.) Ignore taxes. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Expected total rate of return % e. If you purchase a three-year zero-coupon bond now, what is the expected total rate of return over the next year? (Hint. Compute the current and expected future prices.) Ignore taxes. (Do not round intermediate calculations. Round your answer to 2 decimal

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