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 bonbefore 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 percent for $815. The bond has 7 years tomaturity and a par value of $1,000. What rate of return do you expect to earn on your investment?Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.1mb-1. Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bondsell for?Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.b-2. What is the HPY on your investment?Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.1Answer is complete but not entirely correct.12.00 %995.8120.00 %a. Rate of returnb-1. Priceb-2. Holding period return$

Bonds are debt instruments issued by governments, municipalities, and corporations to raise capital.…

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 bor 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 percent for $815. The bond has 7 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. 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 bonc 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. Answer is complete but not entirely correct. 12.00% a. Rate of return b-1. Price b-2. Holding period return $ 995.81 X 20.00 %

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 bor 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 percent for $815. The bond has 7 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. 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 bonc 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. Answer is complete but not entirely correct. 12.00% a. Rate of return b-1. Price b-2. Holding period return $ 995.81 X 20.00 %

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

Suppose today you buy a coupon bond that you plan to sell one year later. Which of the rate of return formula incorporates future changes into the bond's price?
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 9.5% annual coupon bond for $ 1,210. 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%
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?
When you use the effective annual yield on a semi-annual coupon bond to price the corresponding annual coupon bond, do you get the same price?
2
The bond J is a bond with a coupon rate of 4%. The bond K is a bond with a coupon rate of 10%. Both bonds have a maturity of 8 years, make semi - annual payments, and have a yield to maturity of 9%. If interest rates suddenly increase by 2%, what is the percentage change in the price of these bonds? And if the rates suddenly decrease by 2%? What does this problem teach you about the interest rate risk of low - coupon bonds?
suppose you bought a 5- year-zero coupon Treasury bond for $800 per $1000 face value.What is the yield to maturity ( annual compounding ) on the bond?
Consider a 4-years bond with a 8% annual coupon rate and semi-annual payments. Let us suppose that the zero coupon curve rate today with annual compounding is given by the one in Table 1.(a) Calculate the discount factors for all the previous maturities and then the bond price.(b) Calculate the equivalent continuous compounding rates. What do you expect as result for the bond price with these rates? Should it be lower, higher or equal to the one in part (a)? Why? The equivalent continuous compounding rates should be lower than the annual rates. Why?
Suppose you have a 10-year bond (the bond will mature in 10 years), with a coupon rate of 2.45%. Coupons are paid on a semi-annual basis. The face value of the bond is $1000. Suppose the bond's yield to maturity suddenly increases from 2.13% to 2.63%. What is the impact on the price of the bond in percentage terms? Justify all of your response.
Consider the zero coupon Treasury bond yield curve. Suppose a 1 year bond has a yield of 2.13%. The yield curve slopes downwards between maturities of 1 year and 3 years, and then slopes upwards. Which of the following must be true? Group of answer choices A) The yield of a zero coupon bond with maturity 5 years is higher than 2.13%. B) A 1 year positive coupon bond must have a lower price than the zero coupon bond with the same maturity. C) Bond purchasers believe the Fed will decrease rates in the short run, and then increase them in the long run. D) The economy will be in a recession within 2 years. E) C and D.
Bond price and bond value are the same thing. The price an investor should pay for something should be (is) equal to its value. A bond with a coupon rate of 3.5% matures in 11 years. Yields are currently 3%. What is the price of the bond? Answer:
Consider a 25-year coupon bond which has a face value of $500 and a 5% coupon rate. Its current price is $500. The interest on this bond is expected to go up from 5% to 10% next year. a) Calculate the current yield of this 25-year coupon bond. b) Using the coupon bond pricing formula, calculate the expected price at which this bond will be sold next year. c) Calculate the expected rate of return if you buy the bond today and sell it next year. d) Are you going to invest on this bond if your investment horizon is just one year? Explain why or why not.

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