Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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- You bought one of Elkins Manufacturing Co.'s 6.8 percent coupon bonds one year ago for $1,054. These bonds make annual payments, mature 15 years from now, and have a par value of $1,000. Suppose you decide to sell your bonds today, when the required return on the bonds is 5 percent. If the inflation rate was 3.6 percent over the past year, what would be your total real return on the investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Total real return %arrow_forwardSuppose that last year, the market price for a certain bond was $10,766. Since then, the price has decreased by 10.4%. If the current yield was 7.5% last year, what is the current yield today? Round your answer to the tenth of a percent.arrow_forwardYou buy a bond that pays annual interest payments of 7% of the bond’s face value of $1000. You initially pay $950 for the bond. You receive an annual interest payment after one year, then sell the bond for $880. What is your total rate of return on the investment, expressed as a percentage of the purchase price?arrow_forward
- Suppose the interest rate on a 1-year government bond is 3.00%, on a 4-year government bond is 3.50% and that on a 6-year government bond is 4.90%. What is the market's forecast for 2-year rates 4 years from now, assuming the pure expectations theory is correct? Show your work.arrow_forwardYou will receive $1000 from a savings bond in3 years from now. The nominal interest rate is 8% and the rate of inflation is 2%. What is the real value of the $1000 that you receive 3 years from now in terms of today's dollars?arrow_forwardSuppose you bought a bond with an annual coupon rate of 4 percent one year ago for $800. The bond sells for $850 today. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year?arrow_forward
- You plan to buy an 8% coupon 8-year maturity bond when market rate of return of similar bond is 10%. a) Calculate the proper price for this bond. b) TWO years later, the market rate has changed to 9% and the price of your bond has also changed accordingly. If you sell this bond at the market price, what is the ANNUAL rate of return from your investment in this bond? c) What will be your real rate of return over the two years if inflation rate is 3% in the first year and 5% in the second?arrow_forwardYou just bought a bond (M=$1000, CR=10%, n=20 years, semiannual coupon pay yielding 10.5%. If you sell the bond one year from today when the yield is 9.75%, what would be your realized (actual) rate of return (before-tax)? 16.996%arrow_forwardYou just bought a newly issued bond which has a face value of $1,000 and pays its coupon once annually. Its coupon rate is 6%, maturity is 20 years and the yield to maturity for the bond is currently 8%. Suppose that one year after you bought the bond, the yield to maturity of the bond declines to 7%. Find the (before-tax) total dollar return (dollar returns from the coupon payment and capital gains) for the one-year investment period.arrow_forward
- Suppose today that you have the following information: yield on 10-year TIPS: 3.5% yield on 10-year Treasury note: 3.0% What is the expected annual rate of inflation (approximate) over the next 10 years?arrow_forwardThe Wall Street Journal reports that the rate on 3-year Treasury securities is 7.10 percent, and the 6-year Treasury rate is 7.35 percent. From discussions with your broker, you have determined that expected inflation premium is 2.60 percent next year, 2.85 percent in Year 2, and 3.05 percent in Year 3 and beyond. Further, you expect that real interest rates will be 3.55 percent annually for the foreseeable future. What is the maturity risk premium on the 6-year Treasury security?arrow_forwardPlease show work You want to purchase a bond that will pay you $300 per year for the next four years. If the annual interest rate is 4%, then what is the price of your bond if the market is in equilibrium? You buy a stock that is expected to pay a dividend of $300 per year for the next four years. If the discount rate is 5.5%, then what is the stock price in this case? Is this result the one you would expect when comparing this answer to the one you obtained in question 3? Why or why not?arrow_forward
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