Consider the following coupon bond issued by XYZ.inc Term: 3 years Payment: 75 Face Value: 1,000 Currently the prevailing risk free rate is 0.02 and the market places a risk premium on XYZ.inc bonds of 0.02 Suppose the risk premium decreases by 0.02 Compute the change in the bond price.

Consider the following coupon bond issued by XYZ.inc Term: 3 years Payment: 75 Face Value: 1,000 Currently the prevailing risk free rate is 0.02 and the market places a risk premium on XYZ.inc bonds of 0.02 Suppose the risk premium decreases by 0.02 Compute the change in the bond price.

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

See similar textbooks

Related questions

Q: Suppose a ten-year, $1,000 bond with an 8.1% coupon rate and semiannual coupons is trading for…

A: As per company guidelines expert can answer only question at a time. Ask remaining questions…

Q: You find a zero coupon bond with a par value of $10,000 and 20 years to maturity. The yield to…

A: A zero-coupon bond is a type of bond which does not pay any periodic coupon but provides the option…

Q: Bond 1 matures in two years and pays an annual coupon (at the end of the year) of 1%. The face value…

A: YTM With face value (FV), present value/ price (PV), period (n) and coupon payment (C), YTM is…

Q: Suppose a ten-year bond with a $10,000 face value pays a 5.0% annual coupon (at the end of the…

A: default risk is the risk when a borrower will be unable to make the required payments on their debt…

Q: Consider the following coupon bond issued by XYZ.inc Term: 10 year Payment: 25 Face Value: 1,000…

A: Bonds are the debt security which is offered or issued by the corporates or the government to…

Q: You find a zero coupon bond with a par value of $10,000 and 23 years to maturity. The yield to…

A: Calculation of Price of Bond:The price of bond is $3,593.25.Excel Spreadsheet:

Q: 00 par value bond that has an 8% coupon rate, pays a semi-annual coupon, matures 2 years from today,…

A: Macaulay duration is weighted average duration of bond considering the cash flow from bond. It is…

Q: A 10-year semiannual coupon bond with coupon rate of 7% per year is selling to yield 6.5% per year…

A: A compounding period is a time between when interest was last compounded and when it will be added…

Q: Assume the zero-coupon yields on default-free securities are as summarized in the following…

A: Let\'s assume the par annual coupon is C per annum paid once annually.Face Value of the bond, FV = $…

Q: Suppose a ten-year, $1,000 bond with an 8.5% coupon rate and semiannual coupons is trading for…

A: Par value = $1000 Coupon rate = 8.5% Semi annual coupon amount = 1000*0.085/2 = $42.50 Years to…

Q: Compute the price of a 6.2 percent coupon bond with 10 years left to maturity and a market interest…

A: Lets assume the face value (FV) of the bond is $1,000. The annual coupon rate is 6.2% and the annual…

Q: Suppose you are considering two possible investment opportunities: a 12-yearTreasury bond and a…

A: Risk free rate (r) 4% Expected Inflation for 2 years 2% Expected Inflation…

Q: Below is a list of prices for zero-coupon bonds of various maturities. Price of $1,000 Par Maturity…

A: Given information: Par value of bond is $1,000 Coupon rate is 5% Maturity is 3 years

Q: A 7-year zero-coupon bond has a face value of $1,00o. If its YTM changes from 3.9% to 4.7%, what is…

A: Bond valuation is the method of finding the fair value of the bond. Present value means the…

Q: Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date.…

A: The first question is incomplete. In order to answer the question, we need the options available for…

Q: What is the price of the bond? b. If the rate of interest increases 1 percent, what will be the…

A: NOTE: As per our policy, we only answer up to three sub-questions. Therefore the first three…

Q: Consider a semi-annual bond that has a par value of 100, a 15-year maturity, a 5% coupon rate.…

A: Hi, since you have posted a question with multiple-subparts, we will answer the first three. Please…

Q: You buy a 6 year bond with an annual 5% coupon at par value, $1000. If the yield to maturity at the…

A: Solution: Bond value is the present value of the cash inflows receivable from the bond for the…

Q: Consider a five-year, default-free bond with annual coupons of 5% and a face value of $1,000 and…

A: Face value (F) = $1000 Annual coupon (C) = 5% of $1000 = $50 n = 5 years Let r = YTM

Q: Assume the zero-coupon yields on default-free securities are as summarized in the following table:…

A: Bond Bonds are debts instruments that are issued by entities to raise funds and meet their capital…

Q: A bond with a face value of $1,000 has 10 years until maturity, carries a coupon rate of 7.9%, and…

A: Face value of bond is $1,000 Time period is 10 years Coupon rate is 7.9% Coupon frequency is annual…

Q: Consider a semi-annual bond that has a par value of 100, a 15-year maturity, a 5% coupon rate.…

A: Note: As per our guidelines, we can only answer three subparts at once. Please post other subparts…

Q: A bond for the Chelle Corporation has the following characteristics: Maturity - 12 years Coupon -…

A: The question is based on the concept of modified duration , its relation with Macaulay duration and…

Q: You buy a(n) 7.4% coupon, 5-year maturity bond for $976. A year later, the bond price is $1,136.…

A: Borrowings are the liability of the company which is used to finance the requirement of the funds.…

Q: price today of a two-year, default-free security with a face value of $1,000

A: Introduction: Bonds are fixed income instruments that are issued by companies in order to raise…

Q: You find a zero coupon bond with a par value of $10,000 and 15 years to maturity. The yield to…

A: A zero-coupon bond is a bond that does not pay any interest during the life of the bond. The…

Q: Consider the following coupon bond issued by XYZ.inc Term: 1 year Payment: 100 Face Value: 1,500…

A: Required return = Risk free rate + security risk premium

Q: Assume the following characteristics of à bónd: Seling at 96.000, 2.3% coupon, annual pay, 12 years…

A: Selling Price of Bond is 96.000 Coupon rate is 2.5% Time to Maturity is 12 years Face Value of Bond…

Q: Suppose a 2 year bond with F = C = 1000, and a nominal annual coupon rate convertible semian- nually…

A: Face value (F) = 1000 Coupon (C) = (10% of 1000) / 2 = 50 n = 2 years = 4 periods r = YTM = 8% per…

Q: For the following questions, assume the normal case that coupon payments are semi-annual. a. What is…

A: Face Value of Bond = 1000 Time Period of Bond = N = 10 years Bond Price = 1000 Coupon Rate = 5.3%…

Q: Calculate the current price of the following bonds: b) Bond J has a face value of $22,000 and a…

Q: Suppose a ten-year, $1,000 bond with an 8.5% coupon rate and semiannual coupons is trading for…

A: Here,

Q: The current market price of a 10-year zero- coupon bond is $1,234.567. The face value of the bond is…

A: A zero coupon bond is a bond which is issued at deep discount and redeemed at face value. There is…

Q: Suppose a ten-year, $1,000 bond with an 8.5% coupon rate and semiannual coupons is trading for…

A: Bond price is the sum of present value of all coupons and present value of face value at maturity.…

Q: Consider a bond that has a current value of $1,081.11, a face value of $1,000.00, a coupon rate of…

A: Current Value of Bond = 1081.11 Face Value of Bond = 1000 Coupon = Coupon Rate * Face Value of Bond…

Q: Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $94.34, while a…

A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…

Q: a. A 6% coupon bond paying interest annually has a modified duration of 10 years, sells for $800,…

A: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only…

Q: A 2-year zero-coupon bond with $100 principal is trading at $95.00. Price of a 2-year coupon bond…

A: In this given question we, need to calculate the spot rate for a Zero coupon bond and the spot rate…

Q: xplain the diff

A: A bond refers to the fixed income instrument which represents the loan made by an investor to the…

Q: Find the duration of a 3-year bond with annual coupon payments of $80 and a par value of $1,000.…

A: A bond is a debt security that pays regular periodic coupon payments to its holder and the bond…

Q: Consider a semi-annual bond that has a par value of 100, a 15-year maturity, a 5% coupon rate.…

A: Bonds are a part debt financial assets where guaranteed income is received by the bondholder at the…

Q: Assume that a RM1,000 par value bond has a coupon rate of 5% and will mature in 10 years. It has a…

A: Par Value = 1000 Coupon = Coupon Rate * Par Value = 5%* 1000 = 50 Price = 810.34 N = 10

Q: Consider the following coupon bond issued by XYZ.inc Term: 1 year Payment: 125 Face Value: 1.500…

A: Provided a certain rate of return, present value (PV) is the current value of a potential amount of…

Q: An investor buys a three-year bond with a 10% coupon rate with semiannual coupon payments. The bond…

A: Let the face value (F) = $100 Coupon (C) = (10% of 100) / 2 = $5 n = 3 years = 6 periods Let r =…

Question

Consider the following coupon bond issued by XYZ.inc
Term: 3 years
Payment: 75
Face Value: 1,000
Currently the prevailing risk free rate is 0.02 and the market places a risk premium
on XYZ.inc bonds of 0.02
Suppose the risk premium decreases by 0.02
Compute the change in the bond price.
Record your unitless answer to the nearest cent.
Your Answer:

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Consider the following coupon bond issued by XYZ.inc Term: 1 year Payment: 100 Face Value: 1,500 Currently the prevailing risk free rate is 0.01 and the market places a risk premium on XYZ.inc bonds of 0.09 Compute the present value of an XYZ.inc bond? Record your unitless answer to the nearest cent. Your Answer:
Consider the following coupon bond issued by XYZ.inc Term: 1 year Payment: 125 Face Value: 1.500 Currently the prevailing risk free rate is 0.01 and the market places a risk premium on XYZ.inc bonds of 0.08 Compute the present value of an XYZ.inc bond? Record your unitless answer to the-nearest cent. Your Answer:
Consider the following pure discount bonds with face value $1,000: Maturity Price 1 952.38 2 898.47 3 847.62 4 799.64 5 754.38 a). Find the spot rates and draw a yield curve.b). Assume that there is a constant liquidty premium that is equal to 1% across all maturities. Find the forward rates and the expected one period future interest rates.
If you have a coupon bond, its face value is $1,000 and the coupon rate is 4%. Complete the following table, then calculate the rate of return for the bond. If you know that it was purchased at the nominal value, comment on the results. due date return at maturity the price 2 0.02 3 0.04 5 0.06 Present Value Annuity value % n value % n 0.961 0.02 2 1.97 0.02 2 0.925 0.04 2 1.89 0.04 2 0.889 0.04 3 2.78 0.04 3 0.906 0.02 5 4.71 0.02 5 0.747 0.06 5 4.21 0.06 5
Consider an annual 2 year coupon bond paying a coupon rate of 7%. If it is 1000 par and the YTM= .06 A) What is the price of this bond? Answer: 1018.33 B) What is thebond’s modified duration? Answer: 1.82 C) Use the bond’s modified duration to estimate the pricechange of the bond if YTM changes to .055. (So positiveprice change of $40.2 would be written 40.2 and a negativeprice change of $40.2 would be writen as-40. Answer: 9.29 D) Price at 10 yearsemi-annual coupon bond with a 5%coupon rate and a YTM of 8%. If par is 1000. Answer: 796.14 Note: Please explain without using excel.Thanks
Suppose you purchase a $1000 Face-Value Zero-Coupon Bond with maturity 30 years and yield to maturity 4% quoted with annual compounding. Show the bond cash flows on a time line and compute the current price of the bond Draw a graph to illustrate how the price of this bond will change as it gets closer to maturity – Price (on y axis) vs Time (on x axis). Why is a zero-coupon bond more sensitive to interest rate changes than similar coupon bearing bonds (2 or 3 sentences)?
The current zero-coupon yield curve for risk-free bonds is as follows What is the price per $100 face value of a two-year, zero-coupon, risk-free bond? The price per $100 face value of the two-year, zero-coupon, risk-free bond is $ ____ (Round to the nearest cent.)
The current zero-coupon yield curve for risk-free bonds is as follows: What is the price per $100 face value of a two-year, zero-coupon, risk-free bond? The price per $100 face value of the two-year, zero-coupon, risk-free bond is $ Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) 1 2 YTM 4.99% 5.53% Print 3 5.72% Done (Round to the nearest cent.) 4 5.92% 5 6.07% X
Consider the following pure discount bonds with face value $1,000: Maturity Price 1 952.38 2 898.47 3 847.62 4 799.64 5 754.38 Suppose now that the current one-period interest rate is 5% and that the markets expects future one period interest rates to decline by %0.5 per year.(a). Assume first that the liquidity premium is constant at 1%. Draw a graph with the spot yield curve, the forward rates curve and a curve showing expected future one-period interest rates.(b). Assume next that the liquidity premium increases by 0.5% per year from initially being 1%. Draw a graph with the spot yield curve, the forward rates curve and a curve showing expected future one-period interest rates.
Consider the following bonds: . What is the percentage change in the price of each bond if its yield to maturity falls from 6.3% to 5.3%? The price of bond A at 6.3% YTM per $100 face value is $ (Round to the nearest cent.) - X Data table (Click on the following icon g in order to copy its contents into a spreadsheet.) Bond Coupon Rate (annual payments) Maturity (years) A 0.0% 15 В 0.0% 10 3.6% 15 8.4% 10 Print Done
You have decided to invest in Bond x, an n-year bond with semi-annual coupons and the following characteristics: Par value is 1000 The ratio of the semi - annual coupon rate to the desired semi- annual yield rate, is 1.03125. The present value of the redemption value is 381.5. Given v=0.5889, what is the price of bond x ? A) 1,055 B) 1,072 C ) 1,073 D) 1,069 E) 1,044
The current zero-coupon yield curve for risk-free bonds is as follows: coupon, risk-free bond? . What is the price per $100 face value of a two-year, zero- The price per $100 face value of the two-year, zero-coupon, risk-free bond is $ (Round to the nearest cent.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) 1 2 3 YTM 4.95% 5.49% 5.76% 4 5.97% 5 6.09% Print Done -

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS