Assume that you are considering the purchase of a 11-year, noncallable bond with an annual coupon rate of 8.90%. The bond has a face value of $1000, and it makes semiannual interest payments. If you require an 13.90% yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

Assume that you are considering the purchase of a 11-year, noncallable bond with an annual coupon rate of 8.90%. The bond has a face value of $1000, and it makes semiannual interest payments. If you require an 13.90% yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?

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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The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bon before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy an annual coupon bond with a coupon rate of 8 percent for $815. The bond has 7 years to maturity and a par value of $1,000. What rate of return do you expect to earn on your investment? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.1m b-1. Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b-2. What is the HPY on your investment? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.1 Answer is complete but not entirely correct. 12.00 %…

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