3.28. A perpetual bond has face value $1,000, and coupon 8%. You bought this bond when the interest rates were 10%, and sold it when the interest rates were 12%. Find your capital gain or loss in dollars.

3.28. A perpetual bond has face value $1,000, and coupon 8%. You bought this bond when the interest rates were 10%, and sold it when the interest rates were 12%. Find your capital gain or loss in dollars.

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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3.28. A perpetual bond has face value $1,000, and coupon 8%. You bought this bond
when the interest rates were 10%, and sold it when the interest rates were 12%. Find your
capital gain or loss in dollars.

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Step 2: Calculation of capital gain or loss:

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Step 3: Price of Bond at 10% interest rate :

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Step 4: Price of Bond at 12% interest rate :

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Step 5: Calculation of capital gain or loss

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Suppose that you own a 1-year bond with a 10% coupon rate, a yield of 2%, and a face value of $1,000. Suppose further that you took out a 1-year loan of $900 at 2% (you lucky devil, you!) to help start your new food truck business. Calculate your net worth (assets minus liabilities) if all interest rates rise from 2% to 3%. ___________
Consider the folllowing cash flows. The market interest rate is 14%. What is the price of the bond? Year 0 1 2 3 4 CF 200 200 50 350 rate 14% DCF 175.44 153.89 33.75 207.23
9. Suppose the accrued interest on a 8%-coupon bond is $20. The clean price is $909.10. What is the invoice or dirty price?
son.1
Need to know how to do it in excel!!
The price of a bond is 900$, if the coupon rate decreased, the price of this bond will? a. Remain the same. b. Increase. c. Decrease.
Explain it early and correctly.
4. Using Excel or your favorite software: (a) A 5-year Treasury newly issued on February 15, 2021 would have a coupon equal to the 5-year par coupon and would have been priced at par. Confirm that your par coupon results in a par price for this bond. (b) Calculate the 6-month forward rates for all the cash-flow dates of your 5-year bond. Confirm that a 5-year floating rate bond with coupons equal to the forward rates prices at par. (c) Consider the case where the Federal Reserve increases rates in a way that results in an increase of all forward rates by 200 basis points: i. Recalculate the price of the fixed-rate bond using the par coupon you calcu- lated in part 4(a) above. Note that the discount factors will have changed because of the parallel shift in the forward curve. Briefly explain the price change or lack thereof. ii. Recalculate the price of the 5-year floating-rate bond. Briefly explain the price change or lack thereof. (d) A security known as an interest-rate swap can be…
4. A bond worth $10,000 with a coupon rate of 5% with a discount rate of 3% over 10 years, what is the present value?
klp.3
3. You own several bonds and as an astute investor, you keep track of your interest payments (also known as coupon payments or cash flows). Annually, you receive a fixed total of interest payments of $2,000 per year from these bonds for the next 5 years and your required rate of return is 7.5%. What is the current value of your bond investment? Show your work and explain your answer.
1

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