Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Suppose investors can earn a return of 4.5% per 6 months on a Treasury note with 6 months remaining until maturity. The face value of the T-bill is $10,000. What price would you expect a 6-month-maturity Treasury bill to sell for?
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- Example: suppose that the three-month T-bills annualized rate is 8% and that Elizabeth company plans to issue 90-days commercial paper. If Elizabeth co. believes that an 0.7 percent default risk premium, an 0.2 percent liquidity premium, and a 0.3 percent tax adjustmer are necessary to sell its commercial paper to investors. What is the appropriate yield to be offered on the commercial paper? If the default risk premium decreases from 0.7 percent to 0.5 percent but the annualized T-bills rate increases from 8percent to 8.7 percent, what is the appropriate yield to be offered on the commercial paper?arrow_forwardA 330-day T-Bill is currently selling at a discount rate of 3.97%. What will be the price of the T-Bill with a face value of $2 million? What is the return on the T-bill if the investor holds until maturity?arrow_forwardSuppose 6-month Treasury bills are trading at a YTM of 1.1%, 12-month T-bills are trading at a YTM of 2.2%. If 18-month Treasury notes with a coupon rate of 3% are trading at par ($100), then what is the 18-month spot rate? Assume semi-annual compounding. Round your answer to 4 decimal places. For example if your answer is 3.205%, then please write down 0.0321.arrow_forward
- What is the present value of a security that will pay $6,000 in 20 years if securities of equal risk pay 5% annually? Do not round intermediate calculations. Round your answer to the nearest cent.arrow_forwardOne year T-bills yield 2.50%. Based on futures rates, the market expects that one year from now, new one year t-bill will yield 2.75%. Based on the Pure Expectations theory, what is the yield of a 2-year treasury note?arrow_forwardSuppose that $10,000 of a 6-year fixed-principal Treasury note with a coupon rate of 6.5% is purchased by a dealer firm to create zero-coupon Treasury securities. Let’s assume the appropriate annual yield is 8%. What should be the current value of the zero-coupon Treasury security created from the fifth coupon payment?arrow_forward
- What is the present value of a security that will pay $18,000 in 20 years if securities of equal risk pay 8% annually? Round your answer to the nearest cent.arrow_forwardA 20-year government coupon bond has a face value of $1,000 and a coupon rate of 6% paid annually at the end of each year. Assume that the market interest rate is 8% per year. What is the bond’s PV? (You can sum the PVs for each of the coupon payments and the final $1,000, or you can use the annuity formula in the text, at p. 103, to calculate the PV of the coupon payments and save some work. If you use the annuity formula, be sure to add the PV of the final $1,000 payment to the annuity result.) Round your answer to the nearest dollar (XXX). 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.arrow_forwardA promissory note with a face value of $500,000 has 45 days until maturity. If the relevant yield is 7% then what is the current price of this promissory note? Can you please give me the solution for this accompanied by an explanation? Thank you so much!arrow_forward
- A two-year maturity floater. Assume annual coupon payment and $1,000 par. Its discount rate is Libor + 2%. The discount rate for fixed cash flows is 2% a. What is the price of this floater if the coupon is Libor + 2%? b. What is the price of this floater if the coupon is Libor + 1%?arrow_forwardSuppose an investor purchases $114,000 of TIPS with a 6.14% coupon rate and 12 years until maturity. How much with the second coupon payment be if the level of CPI adjusts to the levels below? Today 6 months from now 12 months from now 18 months from now 228 246.2 256.1 265.5arrow_forwardBased on economists' forecasts and analysis, 1-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: 0.80% = 1.95% R1 E(201) E(371) = $2.05% E(471) 2.35% L2= 0.07% L3= 0.11% L4= 0.13% Using the liquidity premium theory, determine the current (long-term) rates. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Years 1 2 3 4 Current (Long-term) Rates % % % %arrow_forward
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