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Problem 13-02
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A $1,000 bond has a 4.5 percent coupon and matures after ten years. If current interest rates are 8 percent, what should be the price of the bond? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar.
$
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If after five years interest rates are still 8 percent, what should be the price of the bond? Use Appendix B and Appendix D to answer the question. Assume that the bond pays interest annually. Round your answer to the nearest dollar.
$
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Even though interest rates did not change in a and b, why did the price of the bond change?
The price of the bond with the longer term is than the price of the bond with the shorter term as the investors will collect the interest payments and receive the principal within a longer period of time.
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Change the interest rate in a and b to 2 percent and rework your answers. Assume that the bond pays interest annually. Round your answers to the nearest dollar.
Price of the bond (ten years to maturity): $
Price of the bond (five years to maturity): $Even though the interest rate is 2 percent in both calculations, why are the
bond prices different?The price of the bond with the longer term is than the price of the bond with the shorter term as the investors will collect the interest payments for a longer period of time.
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- eBook Problem 13-01 A $1,000 bond has a coupon of 5 percent and matures after eight years. Assume that the bond pays interest annually. What would be the bond's price if comparable debt yields 8 percent? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $ What would be the price if comparable debt yields 8 percent and the bond matures after four years? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $ Why are the prices different in a and b?The price of the bond in a is than the price of the bond in b as the principal payment of the bond in a is than the principal payment of the bond in b (in time). What are the current yields and the yields to maturity in a and b? Round your answers to two decimal places. The bond matures after eight years: CY: %YTM: % The bond matures after four years: CY: %YTM: %arrow_forward52arrow_forwardtion 25 A bond has 8 years to maturity and pays a $50 coupon. If current bonds yield 5 %, what is the current value of this bond?arrow_forward
- 56arrow_forwardQuestion 6 Municipal bonds were issued with a face value of $100,000 and a coupon rate of 0.15% per quarter, and coupon payments are quarterly. This bond is bought in the bond market before maturation, and there are only 14 payments remaining. The first coupon payment of this bond is due today and the next payment is due after three months (one quarter), which you will be entitled to receive if you buy this bond now. What is the maximum amount you should pay for this bond today? As an investor, you wish to earn 2.5% compounded daily. Consider first calculating the quarterly effective interest rate for this investor. The coupon rate can be used to calculate recurrent revenues from this bond which will be coupon rate times its face value. *Assume that a quarter is 90 daysarrow_forwardQuestion 5 0/1 Oscorp has just issued its Norman Special Long Bond. The bonds have a maturity of 25 years, a coupon rate of 0.50% and pay the coupon on a semi-annual basis. The face value of the bond is $1000. The bonds are trading at a YTM of 5.00%. What is the current yield of these? (Enter your answer as a % accurate to two decimal points. DO NOT add a % symbol or any extraneous punctuation.)arrow_forward
- Problem 13-07 Fifteen years ago your grandfather purchased for you a 20-year $1,000 bond with a coupon rate of 9 percent. You now wish to sell the bond and read that yields are 6 percent. What price should you receive for the bond? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $arrow_forwardQuestion 3 A bond has a face value or par value of $1000 and will mature at par in 10 years. The coupon rate is 10% compounded semi-annually. The yield rate is 8% compounded semi-annually. Find the excess of the semi-annual coupon payment over the required semi-annual yield. O a $10 Ob $100 Ос $20 Od $80arrow_forwardA bond has the following terms: Principal amount $1,000 Semi-annual interest $45 Maturity 15 years a. What is the bond's price if comparable debt yields 11%? b. What would be the price if comparable debt yields 11% and the bond matures after ten years? c. What would be the bond's price in a. and b. if interest rates declined to 8 % ?arrow_forward
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