Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- Which of the following statements is CORRECT? a. If a coupon bond is selling at par, its yield to maturity is equal to zero. b. If a coupon bond is selling at a discount, its price will continue to increase until it reaches its par value at maturity. c. If interest rates increase, the price of a 10-year coupon bond will decline by a greater percentage than the price of a 10-year zero coupon bond. d. If a bond's yield to maturity exceeds its annual coupon, then the bond will trade at a discount. e. If a coupon bond, is selling at a premium, its yield to maturity is equal to zero. ANSWER IS NOT Carrow_forwardSuppose a seven-year, $1,000 bond with a 7.7% coupon rate and semiannual coupons is trading with a yield to maturity of 6.51%. a. Is this bond currently trading at a discount, at par, or at a premium? Explain. b. If the yield to maturity of the bond rises to 7.38% (APR with semiannual compounding), what price will the bond trade for? a. Is this bond currently trading at a discount, at par, or at a premium? Explain. (Select the best choice below.) OA. Because the yield to maturity is less than the coupon rate, the bond is trading at a premium. B. Because the yield to maturity is greater than the coupon rate, the bond is trading at a premium. C. Because the yield to maturity is less than the coupon rate, the bond is trading at a discount. OD. Because the yield to maturity is greater than the coupon rate, the bond is trading at par.arrow_forwardSuppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 5 Price $983.78 865.89 797.92 732.00 660.24 Required: a. Calculate the forward rate of interest for each year. b. How could you construct a 1-year forward loan beginning in year 3? c. How could you construct a 1-year forward loan beginning in year 4?arrow_forward
- Suppose a ten-year, $1,000 bond with a 8.9% coupon rate and semiannual coupons is trading for$1,035.32. a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? b. If the bond's yield to maturity changes to 9.4% APR, what will be the bond's price? The bond's yield to maturity is ______%. (Round to two decimal places.)arrow_forwardThe bond's duration is the sum of the present value of each payment weighted by the time period in which the payment is received, with the resulting quantity divided by the price of the bond. Therefore, solve for the bond's duration given the following variables: A $1,000 par bond is priced at 95% of par, the bond's annual coupon rate is 6%, and the bond has 4 years to maturity. Additionally, show your calculator's function keys for the 5th column titled, "What is the Present Value Interest Factor at ? %" PV =, FV =, PMT =,N=, and I = .... and CPT key = ? 0.0000 CUIT CPT SET ENTER DEL INS Column 1 Column 2 Column 3 Column 4 Column 5 2ND CF NPV IRR PM AMORT DON CLR TVM PV PMT FV RAND Number (#) of "X" means "multiplied each by" payment Amount of payment "A $1,000 par bond is priced "X" means "multiplied by" What is the Present Value Interest 呢 VE 1/x HYP SIN مر at 95% of par" so $950 x .06 = $57?) 1 X $ 57 X Factor at ? % ? (show calculator function keys: PV=, FV = PMT =, N =, & I=? ? =…arrow_forwardConsider a bond with a coupon of 4.6 percent, five years to maturity, and a current price of $1,047.80. Suppose the yield on the bond suddenly increases by 2 percent. a. Use duration to estimate the new price of the bond. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Price b. Calculate the new bond price using the usual bond pricing formula. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Pricearrow_forward
- Suppose a seven-year, $1,000 bond with a(n) 6.88% coupon rate and semiannual coupons is trading with a yield to maturity of 4.95%. a. Is this bond currently trading at a discount, at par, or at a premuim? Explain. b. If the yield to maturity of the bond rises to 5.29% (APR with semiannual compounding), at what price will the bond trade?arrow_forwardConsider the following bonds: •Bond A: A 2-year zero-coupon bond with a face value of $100 and 6% YTM. •Bond B: A 2-year par-value bond with a face value of $100 and 6% coupon rate. *Bond C: A 2-year par-value bond with a face value of $100 and 7% coupon rate. Suppose the yield curve shifts upwards by one percent. Which bond among bonds A, B, and C will experience the largest percentage price change? Which will have the lowest percentage price change? O a. Bond A; Bond C O b. Bond A; Bond B O c. Bond B; Bond C O d. Bond C; Bond Barrow_forwardConsider a zero-coupon bond with a $1000 face value and 10 years left until maturity. Assuming that this bond trades for $1112, then the YTM for this bond is closest to: A) 8.0%. B) 3.4%. C) 6.8%. D) 9.2%.arrow_forward
- The following table summarizes prices of various default-free zero-coupon bonds (expressed as a percentage of the face value): a. Compute the yield to maturity for each bond. b. Plot the zero-coupon yield curve (for the first five years). c. Is the yield curve upward sloping, downward sloping, or flat? a. Compute the yield to maturity for each bond. The yield on the 1-year bond is 3.92 %. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) Price (per $100 face value) 1 $95.51 2 3 $91.10 $86.55 $81.69 $76.45 Print Dondayarrow_forwardSuppose a ten-year, $1,000 bond with an 8.5% coupon rate and semiannual coupons is trading for $1,034.45. a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? b. If the bond's yield to maturity changes to 9.9% APR, what will be the bond's price? a. What is the bond's yield to maturity (expressed as an APR with semiannual compounding)? The bond's yield to maturity is 8 %. (Round to two decimal places.) b. If the bond's yield to maturity changes to 9.9% APR, what will be the bond's price? The new price for the bond is S. (Round to the nearest cent.)arrow_forwardConsider a coupon bond that has a par value of $1,000 and a coupon rate of 8%. The bond is currently selling for $1,008.98 and has 2 years to maturity. What is the bond's yield to maturity (YTM)? The yield to maturity isarrow_forward
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