Suppose that a bond makes annual coupon payments at a 7% coupon rate, has 10 years until maturity, and is currently trading at 95. If the yield to maturity on the bond remains unchanged over the next year, what will be the total holding period return on the bond over the period? It should come out to 7.74% but I seem to be doing something wrong, thanks
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Suppose that a bond makes annual coupon payments at a 7% coupon rate, has 10 years until maturity, and is currently trading at 95. If the yield to maturity on the bond remains unchanged over the next year, what will be the total holding period return on the bond over the period? It should come out to 7.74% but I seem to be doing something wrong, thanks!
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- The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy an annual coupon bond with a coupon rate of 8.3 percent for $785. The bond has 8 years to maturity and a par value of $1,000. What rate of return do you expect to earn on your investment? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. b-1. Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b-2. What is the HPY on your investment? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Rate of return b-1. Price b-2. Holding period…Solve the following questions without using Excel. A 5 year bond with a coupon of 7%, that pays interest annually, has its next coupon due in 12 months. It yields 5% per annum. a) compute the duration of the bond. Use this to compute approximately how the price of the bond will change if yields rise to 6%. (b) Compute the convexity of the bond. Use this to obtain a more precise estimate of the change in the price which will occur if the yield rises to 6%.Suppose the continuous forward rate is r(t) = 0.04 + 0.001t when a 8 year zero coupon bond is purchased. Six months later the forward rate is r(t) = 0.03 + 0.0013t and bond is sold. What is the return?
- The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy a bond with an annual coupon rate of 10 percent for $1, 120. The bond has 17 years to maturity. What rate of return do you expect to earn on your investment?The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy an annual coupon bond with a coupon rate of 8.4 percent for $825. The bond has 8 years to maturity and a par value of $1,000. What rate of return do you expect to earn on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-2. What is the HPY on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) X Answer is complete but not entirely correct. Rate of return…1. Suppose that a 30-year Treasury bond offers a 5% coupon rate, paid semi-annually. The marketprice of the bond is $1,000, equal to its par value.a. What is the payback period for this bond?b. With such a long payback period, is the bond a bad investment?c. What is the discounted payback period for the bond assuming its 4% coupon rate is therequired return? What general principle does this example illustrate regarding a project’slife, its discounted payback period, and its NPV?2. Why is the NPV considered to be theoretically superior to all other capital budgeting techniques?Reconcile this result with the prevalence of the use of IRR in practice. How would you respond toyour CFO if she instructed you to use the IRR technique to make capital budgeting decisions onprojects with cash flow streams that alternate between inflows and outflows?
- Suppose that a bond makes annual coupon payments at a 7% coupon rate, has 10 years until maturity, and is currently trading at 95. If the yield to maturity on the bond remains unchanged over the next year, what will be the total holding period return on the bond over the period? It should come out to 7.74% but I seem to be doing something wrong, thanks!1. a.) A zero-coupon bond has a face value of $120.00 and matures in 2 years. The rate of return on equally risky assets is 5% (.05). What will its price be today? Suppose you sell it next year when the rate of return on equally risky assets is 7% (.07). What rate of return did you earn holding the asset for a year? Todays price:1. Suppose that a 30-year Treasury bond offers a 5% coupon rate, paid semi-annually. The marketprice of the bond is $1,000, equal to its par value.a. What is the payback period for this bond?b. With such a long payback period, is the bond a bad investment?c. What is the discounted payback period for the bond assuming its 4% coupon rate is therequired return? What general principle does this example illustrate regarding a project’slife, its discounted payback period, and its NPV?
- The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy a bond with an annual coupon rate of 7 percent for $1,160. The bond has 15 years to maturity. What rate of return do you expect to earn on your investment? Assume a par value of $1,000. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b- Two years from now, the YTM on your bond has declined by 1 percent, and you 1. decide to sell. What price will your bond sell for? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b- What is the HPY on your investment? (Do not round intermediate calculations and 2. enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected rate of return b-1. Bond price b-2. HPY % I %The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy a bond with an annual coupon of 10 percent for $1,120. The bond has 17 years to maturity. What rate of return do you expect to earn on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b- Two years from now, the YTM on your bond has declined by 1 percent and you 1. decide to sell. What price will your bond sell for? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b- What is the HPY on your investment? (Do not round intermediate calculations and 2. enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected rate of return b-1. Bond price b-2. HPY % %The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). (Round the final answers to 2 decimal places.) a. Suppose that today you buy an 8.6% annual coupon bond for $1,120. The bond has 19 years to maturity. What rate of return do you expect to earn on your investment? Expected rate of return % b-1. Two years from now, the YTM on your bond has declined by 1%, and you decide to sell. What price will your bond sell for? (Omit $ sign in your response.) Bond price $ b-2. What is the HPY on your investment? HPY %
