3. Suppose you are considering purchasing a coupon bond with a coupon rate of 5 percent and a face value of $10,000 that matures in 5 years. (a) How much would you be willing to pay for this bond if the market interest rate is 10 percent?(B) Suppose you have just purchased the bond, and the market interest rate suddenly rises to 12 percent. What is the bond worth now? (c) Suppose that one year has elapsed, you have received the first coupon payment, and the market interest rate is still 12 percent. How much would another investor be willing to pay for your bond? If you sell your bond at this price, what would be your rate of return?

3. Suppose you are considering purchasing a coupon bond with a coupon rate of 5 percent and a face value of $10,000 that matures in 5 years. (a) How much would you be willing to pay for this bond if the market interest rate is 10 percent?(B) Suppose you have just purchased the bond, and the market interest rate suddenly rises to 12 percent. What is the bond worth now? (c) Suppose that one year has elapsed, you have received the first coupon payment, and the market interest rate is still 12 percent. How much would another investor be willing to pay for your bond? If you sell your bond at this price, what would be your rate of return?

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

1. Suppose you purchase bond that has a coupon of $75, face value of S1,000, and current price of $1,100. What is your coupon rate? What is your current Save Answer yield? 2. Suppose you purchase a bond with a coupon of $50 for $1,010. You sell it one year later for $900. What rate of return did you carn?
5. (a) Suppose that you have purchased a 5-year zero-coupon bond with face value of$1000 and a price of $800. If you hold the bond to maturity, what is your annualrate of return? (b) Now suppose you have purchased a 5-year bond with face value of $1000, a 10%annual coupon, and a price of $900. Assuming that you hold the bond to maturity,is the IRR greater or less than the return on the bond in part (a)?
3. Suppose the face value of a discount bond (i.e. zero coupon bonds) is 8000 and the bond matures in 12 years. a. What will be the price of the bond if the market interest rate is 8%? b. What will be the price of the bond if the market interest rate is 10%? c. Explain the relationship between bond price and interest rate using your answers you got for question a and question b.
D3) Currently, the market interest rate on a bond is 10%. Yield-to-Maturity is a return you can reliaze when you are investing in a bond until its maturity. If you decide to sell the bond before the maturity, what would be your realized return like? and why?
suppose you purchase a 30-year Treasury bond with a 5% annual coupon, initially trading at par. In 10 years' time, the bond's yield to maturity has risen to 6% (EAR). (Assume $100 face value bond.) a. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond? b. If instead you hold the bond to maturity, what internal rate of return will you earn on your initial investment in the bond? c. Is comparing the IRRs in (a) versus (b) a useful way to evaluate the decision to sell the bond? Explain. 1. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond? The IRR of the bond is nothing%. (Round to two decimal places.)
3. Suppose a bond with face value of $5,000 pays a semi-annual coupon of $60 and is currently priced at $4,200. What is a coupon rate? What is the current yield?
Suppose you buy a bond with 3 years to maturity. The face value is 1000 and the coupon rate is 12 %. Assume after holding the bond for one year the market interest rate falls to 8 % a. What will be the new price of your bond? b. What will be the annual rate of return on your bond? c. Discuss the interest rate risk on bonds using your results in parts (a) and (b)?
b) Suppose that you are considering investing in a four-year bond that has a face value of $1,000 and a coupon rate of 5.5%. (i) What would be the price of the bond you will be paying if the market interest rate on similar bonds is 5%? What is the bond’s current yield? (ii) Now suppose you intend to sell the bond after two years of holding, but the market interest rate on similar bonds unexpectedly rises to 8%. How much would another investor be willing to pay for your bond? What was your rate of return on the bond?
Suppose you purchase a 30-year Treasury bond with a 5% annual coupon, initially trading at par. In 10 years' time, the bond's yield to maturity has risen to 7% (EAR). (Assume $100 face value bond.) a. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond? b. If instead you hold the bond to maturity, what internal rate of return will you earn on your initial investment in the bond? c. Is comparing the IRRs in (a) versus (b) a useful way to evaluate the decision to sell the bond? Explain. a. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond? The IRR of the bond is %. (Round to two decimal places.)
1. Present discounted value (you might want to use a calculator or excel to compute this) a) Suppose a bond pays a coupon of 200$ for four years and a face value of 2000$ in year five. If the discount rate is 8%, what is the Present Discounted Value of this bond? b) If Nilly discounts the future at 5%, what is the maximum amount they’d be willing to pay for a 1 year, no coupon, 10000$ bond? If Shifty discounts the future at 10% what is the minimum amount they’d be willing to accept for the same bond? c) Suppose an investment project costs 1000$ upfront (year 2022), 1000$ next year (2023), then 500$ in years 2024 and 2025 each. Then it pays benefits of 1500$ for the following three years (2026, 2027, 2028). If the discount rate is 10%, is the project worth it?
1. Consider a $20,000 face-value 30-year Treasury bond with a 5% annual coupon rate. Suppose your discount rate is 4%. A. What is the present value of the bond? B. If the current price of the bond is $24,000, should you buy it? Why?
A. (1) Suppose that you have a bond with a face value of $1,000 and a coupon rate of 8% for one year and that you buy another one after one year. What will be your gain if the interest rate increases up to 10%? (2) Suppose that the expectations theory is true and that you can buy a three-year bond with an interest rate of 6% or three consecutive one-year bonds with interest rates of 4%, 5%, and 6%. Which option would you choose to undertake? Why? (3) One-year T-bill rates over the next five years are expected to be 4%, 5%, 6%, 6.5%, and 8%. If five-year T-bonds are yielding 13%, what is the liquidity premium on this bond?

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