A few years ago, you paid $10,000 to buy a corporate bond with a face value (maturity value) of $10,000 that has a coupon rate of 4% payable semi-annually (pays $200 every 6 months). If the bond matures in 10 years, how much is it worth today if the interest rate for similar bonds is 6% compounded semi-annually? A) $7002.52 B) $5,734.90 C) $8,468.28 D) $2,561.26 E) $8,512.25

A few years ago, you paid $10,000 to buy a corporate bond with a face value (maturity value) of $10,000 that has a coupon rate of 4% payable semi-annually (pays $200 every 6 months). If the bond matures in 10 years, how much is it worth today if the interest rate for similar bonds is 6% compounded semi-annually? A) $7002.52 B) $5,734.90 C) $8,468.28 D) $2,561.26 E) $8,512.25

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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A company must make a payment of $2500 in 5 years. Four-year zero coupon bonds and seven-year zero coupon bonds are available for investment. These bonds could be purchased in any quantity and the yield rate is 3% effective. Let A and B be the face values of the 4-year and 7-year zero-coupon bonds, respectively, that are purchased to satisfy full immunization against any changes in interest rates. Find A. Possible Answers A 1262 1431 C 1618 D 1725 E 1962
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Consider a bond issued by MGM Inc. exactly two years ago. At that time the bond’s time to maturity was 30 years. The bond pays semiannual coupons with the coupon rate of 6% per year. The face value of the bond is $1000. a. What is the bond’s price today, if today’s market interest rate for bonds of comparable maturity and default risk is 8% per year? b. You would like to speculate and believe that tomorrow the market interest rate for comparable bonds would decrease to 5%, would you buy or sell short this bond today? c. Suppose that exactly two years from today the price of the bond will be $900, what is the annual YTM at that time? Please explain without using excel
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Bill Magness wants to purchase ERCOT bonds which are maturing in 15 years and yielding 3.87%. These ERCOT bonds have an annual coupon rate of 4.59% and a par value of $5,000. If the ERCOT bonds pay coupons twice per year, how much will Bill Magness have to spend to purchase one ERCOT bond? Note: the next coupon will be paid in exactly 6 months. a. $5,514.90 b. $5,406.76 c. $5,677.10 d. $5,190.49 e. $5,028.29
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