Followings are parts of today's spot interest rates (yes, they can be of a fraction of a year), quoted as effective annual rates. EAR Maturity Effective Annual Rate 1-month 5-month 18-month 1% 6% 10% There is a bond which pays $10 in the end of the first month, $50 in the end of the fifth month, and $1000 in the end of the eighteenth month. (a) What are the holding period returns and APR for each maturity. (b) What is the price of the bond?

Followings are parts of today's spot interest rates (yes, they can be of a fraction of a year), quoted as effective annual rates. EAR Maturity Effective Annual Rate 1-month 5-month 18-month 1% 6% 10% There is a bond which pays $10 in the end of the first month, $50 in the end of the fifth month, and $1000 in the end of the eighteenth month. (a) What are the holding period returns and APR for each maturity. (b) What is the price of 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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If a one-year bond with a face value of $100 (the bond pays the bearer $100 one year from now) sells today for $85, what is the interest rate on the bond? 0 15% 17.6% 1.18% It depends on what the Federal Reserve sets as its target rate for the Federal Funds Rate.
The interest rate on a 5-year Treasury bond is 3%. Investors expect that the one-year interest rate will be 1% in the coming year, 2% in the year after that, and will average 4% per year over the next three years. What is the term premium? Explain your answer.
Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds over years 2, 3 and 4 are as follows: 1R1 = 4.80%, E(201) = 5.45%, E(3r1) = 5.95%, E(41) = 6.10% Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for the four-year-maturity government bond? < A. 5.57% B. 5.62% C. 5.83% D. 6.10%
If a If a bond pays $90 interest annually, matures after ten years and costs $1,100. What is the current Yield.
An annual payment bond has a 10% required rate of return.Interest rates are expected to decrease 71 basis points.If the bond's duration is 12 years.what is the percentage change in bond's price?(write the answer in percentage and round it to two decimals)
Assume that one-year T bill rates are expected to rise by 150 basis points per year over the next six years. Further assume that expectation theory prevails. Compute the required interest rate on a six-year T-bond when the current one-year interest rate is 2.5%. 5.5% a 6.25% b 7.75% c 8.25% d None of the above.
-If the interest rate on a one year bond is currently 12% and the interest rate on one year bond 12 months from now is expected to be 14%, what would be the interest on a two year bond today according to the Expectations Theory.
You have the following information regarding the bond ABC. Semiannual $25 payments YTM 8% Maturity (in 4. years) Par value $1,000 Let's assume the modified duration of this bond is 4. Based on this assumption and using the modified duration, estimate the price of the bond after a 65-basis-point decrease in interest rates.
You issued debt in the form of bonds, with a face value of $1,000, and have 9 years until maturity. The bonds have an annual coupon rate of 7.8%, which are paid semiannually. a. The current price is $1,100. What is the pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g 12.34.) b. The tax rate is 22%. What is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 12.34.)
A government bond pays coupons 11 times a year at an annual rate of 7.5%, has a face value of $1,500, and matures in 11 years. If the current market interest rate is 8.6% compounded annually (i.e., this is an effective rate), 1. What is the periodic market interest rate? (i.e., the rate every 1 th of a year) % (Give answer as a percentage to 6 decimal places) 2. What is the coupon amount paid each time? CAN $ (Give answer to 4 decimal places) 3. What is the current market price of the bond? $ (Give answer to 4 decimal places)
The current 1-year, 2-year, and 3 year bond interest rates are 4%, 5%, and 6%, respectively. The expectations theory of the term structure predicts that the expected 1-year bond interest rate is ___% next year and _____% the year after.
3. Assume that as of today, the annualized interest rate for a seven-year bond is 10percent, while the annualized interest rate for a three-year bond is 7 percent. Use onlythis information to estimate the annualized interest rate for a four-year bond expectedin three years. Use the geometric average method. Make sure to show your work.

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