An investor buys a discount bond that pays him $75,000 after 6 years. The nominal interest rate for the first year is 6% and it decreases by 90 basis points (100 basispoints 1%) up to the third year and then increases by 75 basis points thereafter, due to changes in government policy. If the investor sells his policy in four years to abusinessman, what will be the yield to maturity and price for the businessman, assuming that the expectations hypothesis holds?The price of the bond at the fourth year-SYield to maturity for the businessman during the purchase=%(Round your answer to two decimal places.)

The objective of the question is to calculate the yield to maturity and the price of the bond for…

Answered: An investor buys a discount bond that…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Similar questions

An investor buys a discount bond that pays him $65,000 after 6 years. The nominal interest rate for the first year is 5% and it decreases by 90 basis points (100 basis points=1%) up to the third yea and then increases by 75 basis points thereafter, due to changes in government policy. If the investor sells his policy in four years to a businessman, what will be the yield to maturity and price for the businessman, assuming that the expectations hypothesis holds? The price of the bond at the fourth year $ Vield to maturity for the businessman during the purchase=% (Round your answer to two decimal places) Suppose that, for the same bond the yield to maturity at the third year is 6.55% and there is a constant risk premium (x) applicable for holding the bond. What will be the value of ? *-% (Round your answer to two decimal places)
An investor thought that market interest rates were going to decline. He paid $19,000 for a corporate bond with a face value of $20,000. The bond has an interest rate of 10% per year payable annually. If the investor plans to sell the bond immediately after receiving the 4th interest payment, how much will he have to receive in order to make a return of 14% per year? Solve using (a) tabulated factors, and (b) the GOAL SEEK tool on a spreadsheet.
John buys the following Bond: Coupon = 8.0%, paid ANNUALLY (once per year) Face Value = $1,000 Purchase Price = $1,000 Maturity = 5-years John plans on reinvesting all the coupon payments. If interest rates fall to 5.0% right after John purchases the bond, what is the realized return on John's investment if John holds the bond until it matures?
Suppose an investor sells 100 stocks by short selling for 6 months, the stock price is 30 yuan, and the annual interest rate of 6 months is fixed at 3%. How can I use forward contracts to avoid risks? What is the execution price? Please analyze if the stock price rises to 35 yuan or falls to 25 yuan after 6 months of hedging, what are the losses of this investor?
Adam buys a three-year bond with a $1000 face value and a 10% coupon rate for $1000 today. If one year later the market interest rate increases by 5% and Adam sells the bond, then his rate of return on this investment is ______% (round to one decimal place, negative if it is a loss)
Suppose that Jenna just bought a newly issued 15-year bond with a coupon rate equal to 7%. If Jenna sells the bond at the end of the year when the market price is $917, what would be the bond's yield to maturity? What return would she earn? What portion of the return represents capital gains and what portion represents the current yield?
Suppose the U.S. Treasury offers to sell you a bond for $2,000. No payments will be made until the bond matures 15 years from now, at which time it will be redeemed for $4,000. What interest rate would you earn if you bought this bond at the offer price?
Suppose an investor buys 300 stocks for 3 months, the stock price is 10 yuan, and the annual interest rate for 3 months is fixed at 5%. How can I use forward contracts to avoid risks? What is the execution price? Please analyze if the stock price rises to 15 yuan or falls to 8 yuan after 3 months of hedging, what are the losses of this investor?
A BobCo bond with a face value of $100 matures in one year. There is a 50% chance that BobCo will go bankrupt in the next year, in which case the holder of the bond receives $90. If the current market price of the BobCo bond is $87, what is the (risk-free) market interest rate in percent?
You buy a zero couponbond at the beginning of the year that has a face value of $1,000, a YTM of 7 percent,and 25 years to maturity.If you hold the bond for the entire year, how much in interest income will you have to declare on your tax return? without excel please manually
Eric wants to invest in government securities that promise to pay $1,000 at maturity. The opportunity cost (interest rate) of holding the security is 5.40%. Assuming that both investments have equal risk and Eric’s investment time horizon is flexible, which of the following investment options will exhibit the lower price? An investment that matures in seven years An investment that matures in six years
Assume you own a bond which will mature in 9 years and has a yield to maturity which is less than its coupon rate. Your investment time horizon is one year. If your primary goal is capital gains (or avoiding capital loss) and you strongly believe that interest rates will not change over the nex year, what should you do? A) Buy more of this bond B) Continue holding this bond but sell it in one year C) Nothing D) Sell this bond now

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