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 you are deciding whether or not to buy a particular bond for $2,990.08. If you buy the bond and hold it for 5 years, then at that time you will receive a payment of $5,000. You will buy the bond today if the interest rate is a. no less than 9.48 percent. b. no greater than 9.48 percent. c. no less than 10.83 percent. d. no greater than 10.83 percent.arrow_forward5. You are a fixed income trader at Goldman Sachs. You purchase $1,000,000 in face value of a bond with a price of 102.50 and accrued interest (per 100 face) of 0.75 from a customer. The bond has a modified duration of 3.75. Goldman owns $25,000,000 in face value of the most recently issued 5 year Treasury note on its balance sheet. It has a modified duration of 4.5, a price of 101.75 and accrued interest (per 100 face) of 0.30. Calculate the amount of face value of that Treasury security you need to sell to hedge the interest rate risk of the bond you just purchased. Round to the nearest thousand since bond trade in 1000 face value increments. $1,000,000 $843,000 $833,000 $1,186,000arrow_forwardDogarrow_forward
- You have purchased a U.S. Treasury bond for $3,150.00. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $5,150. What interest rate will you earn on this bond? Group of answer choices 6.18% 5.04% 3.73% 5.67% 4.46%arrow_forward#2 A couple purchased a bond for $950.00 three years ago. The bond pays 7.625% APR with semi-annual coupons with a face value of $1,000. Currently, the bond has exactly 10 years until maturity, and investors seek a return of 12.00% APR on bonds of similar risk. What is the current price of the bond? Submit Answer format: Currency: Round to: 2 decimal places. Hide Hint A couple purchased a bond for $950.00 three years ago. The bond pays 6% APR with semi-annual coupons with a face value of $1,000. Currently, the bond has exactly 10 years until maturity, and investors seek a return of 9% APR on bonds of similar risk. What is the current price of the bond? SOLUTION: Bond Price = PV of Bond Cash Flows Po= = CPN y' -x1- + 1+ Face Value (1+ y')N' APR%x Face Value 6%x$1,000 Coupon CPN = = = $30 per 6 months m 2 y' = y = m 9% 2 = 4.50% per 6 months N' = = Nxm = 10x2 = 20 coupons remaining Po $30 0.045 x(1-(1,045)20) + $1,000 (1.045) 20 = $804.88 KEY POINT: For pricing the bond today, the price…arrow_forwardYogesharrow_forward
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