Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Prices of zero-coupon bonds show:
| year | forward rate |
| 1 | 6% |
| 2 | 8% |
| 3 | 9% |
investors also may purchase a 3-year bond making annual payments of $60 with par value $1,000.
The price of the coupon bond is 958.90 and the YTM is 7.6%.
A) Under the expectations hypothesis, what is the expected realized compound yield of the coupon bond?
B) If you
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- Please include the excel formula You find a zero coupon bond with a par value of $10,000 and 24 years to maturity. If the yield to maturity on this bond is 4.2 percent, what is the dollar price of the bond? Assume semiannual compounding periods. Input area: Settlement date 1/1/2020 Maturity date 1/1/2044 Coupon rate 0.00% Coupons per year 2 Redemption value (% of par) 100 Yield to maturity 4.20% Par value $10,000 (Use cells A6 to B12 from the given information to complete this question. You must use the built-in Excel function to answer this question. Leave the “Basis” input blank in the function. You may enter a constant as a hard coded value.) Output area: Price (% of par) Pricearrow_forwardConsider a 5 year non-call 3 year bond that is callable in 3 year and 4 year at prices of 101 and 100. It pays an annual coupon of 4% and is priced at 101. What is the yield-to-worst for this bond?arrow_forwardCompute the price of a risk-free bond with a face value of $1,000 that has seven years left to maturity, a coupon rate of 5%, and annual interest payments. Assume it just made a coupon payment (i.e., it has seven annual payments left). The current term structure of risk-free rates is provided below. Face value Coupon rate $ 1,000.00 5.00% Term structure Maturity 1 2 3 4 5 6 7 Risk-free yields 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% Coupon payment Face value Cash flows PV (CF) Pricearrow_forward
- 9. An investor purchases 5 zero-coupon bonds, with terms of 1, 2, 3, 4, and 5 years. Each bond has a maturity value of 1,000, and is priced based on the following yield curve: Term (yrs.) Spot rate 2.4% 1 3.0% 3.4% 4 3.7% 5 3.9% What is the modified duration of the investor's portfolio? 2 3arrow_forwardConsider a 4-years bond with a 8% annual coupon rate and semi-annual payments. Let us suppose that the zero coupon curve rate today with annual compounding is given by the one in Table 1.(a) Calculate the discount factors for all the previous maturities and then the bond price.(b) Calculate the equivalent continuous compounding rates. What do you expect as result for the bond price with these rates? Should it be lower, higher or equal to the one in part (a)? Why? The equivalent continuous compounding rates should be lower than the annual rates. Why?arrow_forwardPlease answer fast i give you upvote.arrow_forward
- Manshukarrow_forwardUsing duration and convexity approximation, compute the percentage price change on a 10-year fixed coupon bond, if the interest rate increases by 1%. The modified duration of the bond is 6 years, and convexity is 200 year2. Group of answer choices -6% -5% 7% -7%arrow_forwardEXPECTATIONS THEORY Assume that the real risk-free rate is 2% and that the risk premium is zero. If a 1-year Treasury bond yield is 5% and a 2-year Treasury bond yields 7%, what is the 1-year interest rate that is expected for Year 2? Calculate this yield using a geometric average. What inflation rate is expected during Year 2? Comment on why the average interest rate during the 2-year period differs from the 1-year interest rate expected for Year 2. 6-15 maturityarrow_forward
- Question A .Consider a 2-year, risk-free bond with a coupon rate of 6% (annual coupons) and a face value of $1,000. If the yield on the above bond is 6%: a. What is the Macaulay duration of this bond? b. If the yield increases to 7% immediately, what does the duration approximation predict will be the percentage change in the bond price? c. If the yield decreases to 5% instead, what is the approximate percentage change in the bond price implied by the bond’s duration? d. After receiving the first coupon payment in year 1, the yield increases to 7% and you decide to sell the bond. What is your annualized HPR? Full explain this question and text typing work only We should answer our question within 2 hours takes more time then we will reduce Rating Dont ignore this linearrow_forwardYou are given the following expected 1-year rates for each of the next 5 years and the cash flows for Bond A (assume that it pays an annual coupon). Based on this information, determine the yield-to- maturity for Bond A. Year 1 23 3 4 5 7.17% 6.80% O 7.54% O6.43 % O 7.91% Expected 1-Year Rate 9.00% 8.00% 7.00% 6.00% 5.00% Bond A Cash Flow $ 100.00 $ 100.00 $ 100.00 $ 100.00 $1,100.00 4arrow_forwardConsider a 10-year bond with a face value of $1,000 that has a coupon rate of 5.9%, with semiannual payments. a. What is the coupon payment for this bond? b. Draw the cash flows for the bond on a timeline. a. What is the coupon payment for this bond? The coupon payment for this bond is $ (Round to the nearest cent.)arrow_forward
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