Mr. Chan is the portfolio manager for a large insurance company. He is considering investing $5 million to purchase some bonds of Khabet Inc. All of Khabet's bonds have market prices that imply a yield to maturity of 8% (paid semi-annually). He is particularly interested in a bond that matures in 6 years and pays a 10% coupon. At what price should this bond currently sell? a) You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $250,000 today or receive payments of $1,400 a month for 20 years. You can earn 6 percent on your money. Which option should you take? b) You want to buy a house. You have $20,000 for down payment and closing costs. The down payment is 10% and the closing costs are 10% of the loan amount. The bank is willing to allow you to make monthly payments of 30% of your salary at an annual interest rate of 8% for 30 years, and your annual salary is $36,000. c) How much can you offer for the house?

Mr. Chan is the portfolio manager for a large insurance company. He is considering investing $5 million to purchase some bonds of Khabet Inc. All of Khabet's bonds have market prices that imply a yield to maturity of 8% (paid semi-annually). He is particularly interested in a bond that matures in 6 years and pays a 10% coupon. At what price should this bond currently sell? a) You are the beneficiary of a life insurance policy. The insurance company informs you that you have two options for receiving the insurance proceeds. You can receive a lump sum of $250,000 today or receive payments of $1,400 a month for 20 years. You can earn 6 percent on your money. Which option should you take? b) You want to buy a house. You have $20,000 for down payment and closing costs. The down payment is 10% and the closing costs are 10% of the loan amount. The bank is willing to allow you to make monthly payments of 30% of your salary at an annual interest rate of 8% for 30 years, and your annual salary is $36,000. c) How much can you offer for the house?

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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you bought a 30-year bonds many years ago. The bond has par value of $ 1,000 and coupon rate of 12%, paid semi-annually. The current price of the bond is $1,137.99 and the yield to maturity is 10%. How many years ago did yoy buy the bond Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure
You are a portfolio manager and responsible to manage bonds portfolio. One of your clients (John Smith) purchased a 30-year, 4.75% coupon bond that pays interest annually. The bond has a face value of $1,000. What is the change in the price of this bond if the market yield to maturity declines to 2.20% from the current rate of 4.50%? Please show all the calculations by which you came up with the final answer. Why did the 30-year bond price change? Please explain your reasoning.
You plan to invest in Fixed income so you have decided that Corporate Bonds are appropriate for your investment needs. You find a bond that that matures in 10 years but can be called in 5 years. The Yield to Call equals 8.62% and coupon payments are 8.5%. Par value equals $1,000. Hint: If called, the holder receives Par plus a year of coupon payments. What is the most you should be willing to pay for each Bond? Enter your answer to the nearest penny.
A corporate bond is under sale now. If you buy the bond, you will receive $1 million (including principal and interest) after 1 year. Three investors are competing to buy the bond. They have different required rates of return as shown below. Who would win the competition and buy the bond? Mr. A: 2% Mr. B: 3% Mr. C: 4%
Hello, How do i solve this corporate finanace question without the use of excel. A financial calculator can be used if required. Can you please show each step in the calculation process? Find the annual rate of this coupon bond: A corporate bond with a face value of $1,000 and coupons paid semi-annually, sells for $1,058.39. The term to maturity is 15 years. The yield to maturity of similar bonds is 9.5%.
Answer the following question and show all working using a financial calculator. DO NOT use excel: a.The face value for WICB Limited bonds is $250,000 and has a 6 percent annual coupon. The 6 percent annual coupon bonds matures in 2035, and it is now 2020. Interest on these bonds is paid annually on December 31 of each year, and new annual coupon bonds with similar risk and maturity are currently yielding 10 percent. How much should Karen sell her bonds today?
You are a bond portfolio manager and have $1.2 million that you will invest for 3 years. You have an obligation due in 3 years and you want to immunize your portfolio against interest rate risk over this horizon. You use the $1.2 million to invest in two zero coupon bonds: a 4 year bond and a 1 year bond. How much money should you invest in the 4 year bond? A) $600,000 B) $1.2 million C) $400,000 D) $800,000 E) $900,000
The Isabelle Corporation rents prom dresses in its stores across the southern United States. It has just issued a five-year, zero-coupon corporate bond at a price of $62 (assume a $100 face value bond). You have purchased this bond and intend to hold it until maturity. a. What is the yield to maturity of the bond? b. What is the expected return on your investment (expressed as an EAR) if there is no chance of default? c. What is the expected return (expressed as an EAR) if there is a 100% probability of default and you will recover 90% of the face value? d. What is the expected return (expressed as an EAR) if the probability of default is 50% in good times, the likelihood of default is higher in bad times than good times, and, in the case of default, you will recover 90% of the face value? e. For parts (b) through (d), what can you say about the five-year, risk-free interest rate in each case? Note: Assume annual compounding. C a. What is the yield to maturity of the bond? The yield to…
a. Several years ago, Castles in the Sand Inc. issued bonds at face value of $1,000 at a yield to maturity of 7.2%. Now, with 8 years left until the maturity of the bonds, the company has run into hard times and the yield to maturity on the bonds has increased to 15%. What is the price of the bond now? (Assume semiannual coupon payments.) b. Suppose that investors believe that Castles can make good on the promised coupon payments but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 86% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive?
You are the Chief Financial Officer of Toujours SA, a company listed on the Paris stock exchange. You would like to issue perpetual debt; that is a bond which makes one coupon payment at the end of every year forever. The market yield on similar bonds is 4%. If you seek to raise €1.0bn from the bond, what will the coupon payment be every year? a €10m b €40m c I do not want to answer this question. d €100m e €400m f More information is needed to answer the question.
You are working for an investment company that intends to invest in corporate bonds available in the market. The face value of all the bonds is $1000. The bond currently under your consideration pays 5% coupon annually. The bond has 3 years to maturity. Market interest rate is equal to “10% Calculate the price of the bond today, 1 year from now, and 2 years from now (Hint: Today N=3, one year from now N=2, two years from now N=1). Is your bond a premium bond or a discount bond? Calculate annual returns (Current yield), your bond is paying every year. (Show all the working). What will be the price of the bond at the time of maturity?
4) LetsGoBuffalo Co. currently has 8.5% coupon bonds on the market that sell for $1130.50, make semiannual payments, have a $1,000 par value, and mature in 15 years. What is the YTM on the bonds? b. Assume LetsGoBuffalo Co. starts to run into cash flow problems because of supply chain issues. This makes the company and its bonds more risky. What do you expect will happen to the (a) price and (b) yield to maturity of the bonds when the market realizes this new risk? a.

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