Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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A bond costs $925, with a face value of $1000 and pays 4% of the face value each year. If the bond will be paid off at the end of 10 years and your MARR is 5%, should you buy the bond?
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- You will be paying $12,200 a year in tuition expenses at the end of the next two years. Bonds currently yield 9%. Required: a. What are the present value and duration of your obligation? (Do not round intermediate calculations. Round "Present value" to 2 decimal places and "Duration" to 4 decimal places.) b. What is the duration of a zero-coupon bond that would immunize your obligation and its future redemption value? (Do not round intermediate calculations. Round "Duration" to 4 decimal places and "Future redemption value" to 2 decimal places.) c. Suppose you buy a zero-coupon bond with value and duration equal to your obligation. Now suppose that rates immediately increase to 10%. What happens to your net position, that is, to the difference between the value of the bond and that of your tuition obligation? (Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places.) d. Suppose you buy a zero-coupon bond with value…arrow_forwardHelp me fast with detail explanation. Definitely I will give Upvote.arrow_forwardYou own a 8 year bond that has a face value of $20,000 and pays 10% a year in interest, once a year, at the end of the year. Two years after buying it, the interest rate increases to 13%. You do not want to wait 6 more years to get your principle of $12.000 back because you really need the money, so you decide to sell it on the open market. 1. How much can you sell it for? 2. Would it be a capital loss or gain and how much? How much is the capital gain or loss?arrow_forward
- You have $1,000 to invest for two years and have two choices: Alternative 1: 2-year zero coupon bond selling at a price of 92. Altemative 2: A bank deposit which pays according to the following rates: 1 year spot rate 3 year spot rate 1 year forward rate two years from now 3.0% 4.5% 4.0% Analyse the altematives to detemine the amount received from each alternative at the end of two years. (Give answer to nearest dollar)arrow_forwarda). You want to buy some bonds that will have a value of $1,000 at the end of 4 years. The bonds pay 7.50 percent interest, how much should you pay for them today? (If you solve this problem with algebra round intermediate calculations to 4 decimal places, in all cases round your final answer to the nearest penny.) Present value of bond $ _____________ b). You have just inherited $570,000. You plan to save this money and continue to live off the money that you are earning in your current job. If the $570,000 is everything that you have other than an old car and some beat-up furniture, and you can invest the money in a bond that pays 4.1 percent interest annually, how long will it be before you are a millionaire? (If you solve this problem with algebra round intermediate calculations to 6 decimal places, in all cases round your final answer to two decimal places, e.g. 8.72%.) Number of years _________________arrow_forwardIf the owners choose to invest in bonds instead, they look at a $136,125.00 bond set to mature in 9 years with a bond rate of 2.00%, payable semi-annually. The market rate is 5.40%, compounded semi-annually. The owners will only purchase the bond if they can afford it with their savings ($123,750.00), and they can get the bond at a discount because they think the market rate will go down, potentially making the bond more valuable in the future. 2. Calculate the purchase price of the bond if it is purchased today (9 years before maturity). 3. Do the owners have enough money to buy their bond? Will they make the purchase?arrow_forward
- 3 A) In January 2021 you purchased a $50,000 bond from Walmart with a 3% coupon rate and a 5-year maturity. In December of 2021, you sold this bond in the secondary market for $45,455. What was the yield on the bond that you sold? B) Assume you have obtained a summer internship 20 miles from your house and you are considering purchasing a new car using a car loan. The interest rate for the car loan is currently 3% and your roommate suggested you secure the loan now since interest rates will most definitely increase by the time summer arrives. Do you agree with her, and if so, what factors are you considering?arrow_forwarddon't use excel also can you show me maths solving with equation by hand please....arrow_forwardA few years ago, Zabar Technology issued an annual bond that has a face value equal to $1,000 and pays investors $40 interest semiannually. The bond has four years remaining until maturity. If an investor requires a 5% rate of return to invest in this bond, what is the maximum price he or she should be willing to pay to purchase the bond today? O $1,106.38 O $964.54 O $1,107.55 $935.37arrow_forward
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