Chapter 8. Jeremy Kohn may invest in a 10-year bond that pays a 12 percent coupon semiannually. The current market rate for similar bonds is 8 percent. Jeremy can buy this bond from his uncle for $1,200. Should Jeremy buy the bond from his uncle? (Round to the nearest dollar) O Yes, because he would be paying $71.81 less than the market price of the bond. No, because he would be paying $71.81 more than the market price of the bond. No, because he would be paying $4.88 more than the market price of the bond. Yes, because he would be paying $4.88 less than the market price of the bond. O No, because he would be paying $396.36 less than the market price of the bond.
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- Pierre Dupont just received a cash gift from his grandfather. He plans to invest in a five-year bond issued by Venice Corp. that pays an annual coupon of 4.16 percent. If the current market rate is 7.99 percent, what is the maximum amount Pierre should be willing to pay for this bond? (Round answer to 2 decimal places, e.g. 15.25.) Pierre should pay $____________Yo WS lio cen Kenneth Clark just received a cash gift from his grandfather. He plans to invest in a five-year bond issued by Pharoah Corp. that pays an annual coupon rate of 5.5 percent. If the current market rate is 7.00 percent, what is the maximum amount Kenneth should be willing to pay for this bond? (Round answer to 2 decimal places, e.g. 15.25.) Kenneth should pay $Which will you prefer to invest your $1,50O: a) a two year bond with interest rate of 9 percent or b) two one year bonds, Year 1, the bond will earn 8% and year 2 the second bond will earn 9%. Which bond will you buy?
- Quinn purchases a bond for $29,000 when the market interest rate is 13% per year, compounded semiannually. The bond has an interest rate of 10% per year payable semiannually and a maturity date of 24 years. What is the face value of this bond? (Hint: Solve for C = Z given Vy= $29,000)Suppose that in 2018 your grandmother gifted you a 30 year US Treasury bond which she had bought newly issued in 2010. This bond has a face value of $10,000 and pays 4% coupon every December. This bond will mature in 2040 December. You held that bond and earned coupon payments for two years but in January 2020 you sold this bond in the secondary market. If the market interest rate was 2% at that time, what price did you get for that bond?The bank offers to sell you a bond for 585.43. No payment will be made until the bond matures 10 years from now at which time it will be redeemed for 1000. What interest rate would you earn if you bought this bond for 585.43? What rate would you earn if you could buy the bond for 550? For 600?
- The Bank of Jamaica offers to sell you a bond for $813.81. No payments will be made until the bond matures 8 years from now, at which time it will be redeemed for $1,000. What interest rate would you earn if you bought this bond at the offer price?This morning, Alicia bought a ten-year 9% coupon bond that pays interest annually. She paid $994 for a $1,000 bond. If the market interest rate on this type of bond declines to 8.5% tonight, how much will Alicia receive for her first interest payment? Select one: a. $90.00 b. $70.00 c. $69.58 d. $32.31 e. $40.00Landon is considering the purchase of a $2500 bond from Braydon. There are 5 years remaining until the bond matures. Coupon payments are made on a semiannual basis. Landon decides to offer Braydon $2000 for the bond because he wants to earn precisely 30% yield per year compounded semiannually on the investment. What is the effective annual bond interest rate for this particular bond? Bond Equation: P= Vr(P|A, i%, n).
- If the owners choose to invest in bonds instead, they look at a $136,125.00 bond set to mature in 9 years with a bond rate of 2.00%, payable semi-annually. The market rate is 5.40%, compounded semi-annually. The owners will only purchase the bond if they can afford it with their savings ($123,750.00), and they can get the bond at a discount because they think the market rate will go down, potentially making the bond more valuable in the future. 2. Calculate the purchase price of the bond if it is purchased today (9 years before maturity). 3. Do the owners have enough money to buy their bond? Will they make the purchase?Suppose the government decides to issue a new savings bond that is guaranteed to double in value if you hold it for 18 years. Assume you purchase a bond that costs $50. a. What is the exact rate of return you would earn if you held the bond for 18 years until it doubled in value? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If you purchased the bond for $50 in 2020 at the then current interest rate of .28 percent year, how much would the bond be worth in 2030? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. In 2030, instead of cashing in the bond for its then current value, you decide to hold the bond until it doubles in face value in 2038. What annual rate of return will you earn over the last 8 years? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Rate of return b. Bond value c. Rate…Mary bought a $10,000, 7.25% coupon bond at $9,500. The bond matures in 10 years and interest is paid semi-annually. Three years later, the market rate has dropped and Mary can sell her bond for $10,100. What will her realized yield be if she decides to sell? 10.50% 5.25% 4.75% 9.500% QUESTION 23 You buy a bond today for $9,020. The face value of the bond is $10,000, coupon rate is 3.75%, interest is paid semi-annually, and maturity is in 10 years. After holding the bond for 3 years you decide to sell it for $10,200. What is your holding period yield (or total return or realized yield) on this bond? 9.730% 4.865% 4.049% O 8.097% QUESTION 24 Your bank account pays an 8% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT? The periodic rate of interest is 2% and the effective rate of interest is 4%. The periodic rate of interest is 8% and the effective rate of interest is greater than 8%. The periodic rate of interest is 4% and the…