A bond is a financial asset where the issueris obliged to pay a bond holder interest at specified intervals (the coupon) and/or to repay the principal at a specified future date (the maturity date).pays a rate of return (interest) that fluctuates with market conditions.receives regular payments from the bond holder determined at a market rate at the time of payment.pays a higher rate of return (yield) as the price of the bond rises.

Answered: A bond is a financial asset where the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A bond with a face value of $1,000 has 8 years until maturity, has a coupon rate of 8%, and sells for $1,100. What is the yield to maturity if interest is paid once a year? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places. What is the yield to maturity if interest is paid semiannually? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 4 decimal places.
Economics Annual premiums are paid into a 3 year unit linked endowment policy where 98% of each premium is allocated to units in a fund that carries a 3% bid- offer spread and charges management fees of 0.75% of assets at the end of each policy year. The policy has a death benefit of the bid value of units payable at the end of the year of death subject to a minimum of £12,500. The survival benefit is the bid value of units at the end of the term. The life assurance company estimates that expenses are £95 per policy per year. (a) Produce projected revenue accounts for each year of a policy with an annual premium of £5,000 assuming the annual rate of mortality is 0.00498, an investment return of 6.9% per annum and an interest rate on cash balances of 3% per annum. (b) Does the life assurance company meet its internal profit margin objective of 5% on this policy if its risk discount rate is 5.5% per annum?
Suppose that you purchase a 2 year coupon bond at the time it is issued for $1100. The face value of the bond is $1000, with annual coupon payments of $80. a. What is the bond’s “coupon rate”? b. What is the bond’s “current yield”? c. What is the bond’s (nominal) “yield to maturity”? d. If you hold the bond for 1 year and sell it for $1035 (after collecting the first coupon payment), what is your “holding period rate of return”? Please answer all part otherwise Dounvote
If an initial investment of $1,000 is invested at 8% interest per year with continuous compounding, how much would be in the account after five years? A. $1,291.8 B. $1,481.6 C. $1,491.8 D. $1,391.9 What refers to the amount of a product made available for sale? A. Supply B. Demand C. Product D Good
You are purchasing a 20-year, zero-coupon bond. The yield to maturity is 9.76 percent and the face value is $1,000. What is the current market price? Assume a semiannual interest rate payment.
Ex: Consider a discount bond that has a 1000 TL face value. Current price of the bond is 900 TL and the bond has two years to maturity. What is the yield to maturity for this bond?
3
Assume that an investor is expecting to receive P606,060.00 at the end of 6 years. Compute for the total value of proceeds if it were to be received now under simple and compound discount. The current interest rate is at 16%.
5-2 Net Present Value Suppose an initial investment of $100 will return $50/year for three years (assume the $50 is received each year at the end of the year). Is this a profitable investment if the discount rate is 20%?
A bond that is currently selling at $1,000 offers to pay $50 annually. What is the percentage rate of return on the bond? Multiple Choice 5 percent 10 percent 20 percent 50 percent
Suppose that a bond paying an annual interest payment of $100 falls in price from $1,000 to $900. The yield for the bond Multiple Choice decreased from 11.11 percent to 10.00 percent. O increased by 10 percent. decreased by 10 percent. increased from 10.00 percent to 11.11 percent.
Buena Vision Clinic is considering an investment that requires an outlay of $600,000 and promises a net cash inflow one year from now of $810,000. Assume the cost of capital is 10 percent. Required: 1. Break the $810,000 future cash inflow into three components: a. The return of the original investment b. The cost of capital c. The profit earned on the investment 2. Now, compute the present value of the profit earned on the investment. 3. Compute the NPV of the investment. Compare this with the present value of the profit computed in Requirement 2. What does this tell you about the meaning of NPV?

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