Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- 7. Suppose that Austin compares two strategies invest a $1 as follows: Strategy #1) Austin purchases a 1-year bond "A" with an interest rate of 4%, then after it matures. Austin buys another 2-year bond "B" with an expected interest rate of 6% and holds to maturity. Strategy #2) Austin decides to buy a 3-year bond "C" with a 5% interest rate and holds to maturity. Using the expectation theory to determine which strategy would Austin choose?arrow_forwardI need the answer as soon as possiblearrow_forwardSusan can buy a zero-coupon bond that will pay 1,000 at the end of 12 years and is currently selling for 624.60. Instead, she purchases a bond with 6% semi-annual coupons that will pay 1,000 at the end of 10 years. If she pays X for this bond she will earn the same annual effective interest rate as the zero-coupon bond. Calculate X.arrow_forward
- Nikularrow_forwardKevin Rogers is interested in buying a five-year bond that pays a coupon of 8.5 percent on a semiannual basis. The current market rate for similar bonds is 6.9 percent. What should be the current price of this bond? (Do not round intermediate computations. Round your final answer to the nearest dollar.) O $1,067 O $1,099 O $965 O $982arrow_forwardLatasha would like to invest a certain amount of money for two years and considers investing in a one-year bond that pays 5 percent and a two-year bond that pays 9 percent. Latasha is considering the following investment strategies: Strategy A: Buy a one-year bond that pays 5 percent and in year one, then buy another one-year bond that pays the forward rate in year two. Strategy B: Buy a two-year bond that pays 9 percent in year one and 9 percent year two. If the one-year bond purchased in year two pays 11 percent, and the liquidity premium on a two-year bond is 0.7 percent, Latasha will choose Strategy B Which of the following describes conditions under which Latasha would be indifferent between Strategy A and Strategy B? The rate on the one-year bond purchased in year two is 11.862 percent. The rate on the one-year bond purchased in year two is 12.486 percent. The rate on the one-year bond purchased in year two is 12.861 percent. The rate on the one-year bond purchased in year two is…arrow_forward
- A zero-coupon bond pays no interest during its lifetime. Upon maturity, the investor receives face value. The purchase price determines the rate of return. (a) Henri paid $10,750 for a $20,000 face value zero-coupon bond that matures in 10 years. Find the annual compound rate of interest received. (Round your answer to two decimal places.) % (b) Sandi plans to purchase a zero-coupon bond with a face value of $10,000 and matures in 7 years. She wants to earn 7.1% compounded annually. Find the price. she should pay. (Round your answer to two decimal places.) Additional Materialsarrow_forwardAn investor is considering purchasing a $1,000 bond with an 8% coupon rate. The bond was issued 7 years ago with a 30 year original maturity. If the investor requires a return of 7% based on the riskiness oft he bond, how much should she pay for the bond?arrow_forwardYou are considering a 10-year, $1,000 par value bond. Its coupon rate is 8%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 7.3800%, how much should you be willing to pay for the bond? Do not round intermediate calculations. Round your answer to the nearest cent. Last year Janet purchased a $1,000 face value corporate bond with an 11% annual coupon rate and a 15-year maturity. At the time of the purchase, it had an expected yield to maturity of 11.96%. If Janet sold the bond today for $1,150.11, what rate of return would she have earned for the past year? Do not round intermediate calculations. Round your answer to two decimal places.arrow_forward
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