Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- I need assistance with the following: Suppose you have bough the above zero-coupon bond, with value and duration equal to your obligation. Now suppose the rates immediately increase to 9%. What happens to your net position? How much is the tuition obligation? How much is the zero-coupon bond? How much is the net position?arrow_forwardUse the following table to fill in values for the bond's coupon payment and present value, and Sam's semiannual required rate of return for this investment. Variable Name Coupon Payment Semiannual Required Rate of Return Present Value Variable Value Now, suppose Sam wants to earn a return of 14.00 percent, but the bond being considered for purchase offers a coupon rate of 14.00 percent. It is a $1,000 par value bond that pays a 14.00 percent coupon rate (distributed semiannually) and has three years remaining to maturity. The bond's present value is its par value, which means that the bond is which is Given your calculations and conclusions, which of the following statements are true? Check all that apply. When the coupon rate is less than Sam's required rate of return, the bond should trade at a premium. When the coupon rate is equal to Sam's required return, the bond should trade at par. When the coupon rate is less than Sam's required rate of return, the bond should trade at a…arrow_forwardSuppose you purchase a 10-year bond with 6% annual coupons. You hold the bond for four years and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 4.01% when you purchased and sold the bond, a. What cash flows will you pay and receive from your investment in the bond per $100 face value? b. What is the internal rate of return of your investment? Note: Assume annual compounding. The cash flow at time 1-3 is $ (Round to the nearest cent. Enter a cash outflow as a negative number.) (Round to the nearest cent. Enter a cash outflow as a negative number.) The cash outflow at time 0 is $ The total cash flow at time 4 (after the fourth coupon) is $ negative number.) b. What is the internal rate of return of your investment? (Round to the nearest cent. Enter a cash outflow as aarrow_forward
- Answer this question using the Par Value formula and showing all work. You have been given the following information for an existing bond that provides coupon payments. Par Value: $2000 Coupon rate: 6% Maturity: 4 years Required rate of return: 6%. What is the Present Value (PV) of the bond? If the required rate of return by investors were 11% instead of 6%, what would the Present Value of the bond be? Look at the same Par Value $2,000 Same Coupon rate: 6% Maturity: 10 years Required rate of return: 7% What is the Present Value of the Bond now? Explain how the longer maturities and higher required rate of return by investors affects the bond valuation.arrow_forwardAssume you can buy a bond that has a par value of $1000, matures in 10 years, yielding 6% and has a duration of 5. If you would like to use this bond to form a guaranteed investment contract “GIC” and offer a guaranteed rate of return to investors for certain years. a. what is the maximum yield you can offer? Why? Explain. b. For how many years would you make the guarantee? Explain.arrow_forwardAssume that you are considering the purchase of a 5-year, noncallable bond with an annual coupon rate of 8.00%. The bond has a face value of $1000, and it makes semiannual interest payments. If you require an 11.55% yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond? Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.arrow_forward
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