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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Suppose you buy a bond with 3 years to maturity. The face value is 1000 and the coupon rate is 12 %. Assume after holding the bond for one year the market interest rate falls to 8 % a. What will be the new price of your bond? b. What will be the annual rate of return on your bond? c. Discuss the interest rate risk on bonds using your results in parts (a) and (b)?
Conceptually good pls
1. Consider two bonds with a similar credit rating and pay the same coupon rate per annum. The terms to maturity for Bond A and Bond B are 5 years and 10 years respectively. If inflation rate is expected to increase in the near future and therefore leads to an increase in interest rate, what is the effect on the bond prices? Which bond is likely to experience a larger effect due to the increase in interest rate? Briefly explain your answer.
You own a bond with an annual coupon rate of 5% maturing in two years and priced at 85%. Suppose that there is a 23% chance that at maturity the bond will default and you will receive only 45% of the promised payment. Assume a face value of $1,000.A. What is the bond’s promised yield to maturity?B. What is its expected yield (i.e., the possible yields weighted by their probabilities)
Solve it correctly please. I will rate accordingly.
A 30-year maturity bond making annual coupon payments with a coupon rate of 11.00% has a ation of 13.50 years. The bond currently sells at a yield to maturity of 5.75%. Ducation a. Find the exact dollar price of the bond if its yield to maturity falls to 4.75%. What is the % change in price? b. Assume that you need to make a quick approximation using the duration rule. What is the % change in price as approximated by the duration rule when the yield to maturity falls to 4.75%? c. Does the duration-rule provide a good approximation of the % price change in this case? Why or why not?
You have two bonds in your portfolio, Bond Y and Bond Z. Bond Y matures in 10 years and Bond Z matures in 5 years. They both have the same coupon rates. If interest rates increase or decrease which bond would you expect to have the largest change in their market price?
Suppose you purchase a 10-year bond with 6% annual coupons. You hold the bond for four years and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 4.01% when you purchased and sold the bond, a. What cash flows will you pay and receive from your investment in the bond per $100 face value? b. What is the internal rate of return of your investment? Note: Assume annual compounding. The cash flow at time 1-3 is $ (Round to the nearest cent. Enter a cash outflow as a negative number.) (Round to the nearest cent. Enter a cash outflow as a negative number.) The cash outflow at time 0 is $ The total cash flow at time 4 (after the fourth coupon) is $ negative number.) b. What is the internal rate of return of your investment? (Round to the nearest cent. Enter a cash outflow as a
Answer this question using the Par Value formula and showing all work. You have been given the following information for an existing bond that provides coupon payments. Par Value: $2000 Coupon rate: 6% Maturity: 4 years Required rate of return: 6%. What is the Present Value (PV) of the bond? If the required rate of return by investors were 11% instead of 6%, what would the Present Value of the bond be? Look at the same Par Value $2,000 Same Coupon rate: 6% Maturity: 10 years Required rate of return: 7% What is the Present Value of the Bond now? Explain how the longer maturities and higher required rate of return by investors affects the bond valuation.
Assume you can buy a bond that has a par value of $1000, matures in 10 years, yielding 6% and has a duration of 5. If you would like to use this bond to form a guaranteed investment contract “GIC” and offer a guaranteed rate of return to investors for certain years. a. what is the maximum yield you can offer? Why? Explain. b. For how many years would you make the guarantee? Explain.
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?
Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $90.44, while a 2-year zero sells at $82.64. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 12% per year. Required: a. What is the yield to maturity of the 2-year zero? b. What is the yield to maturity of the 2-year coupon bond? c. What is the forward rate for the second year? d. If the expectations hypothesis is accepted, what are (1) the expected price of the coupon bond at the end of the first year and (2) the expected holding-period return on the coupon bond over the first year? e. Will the expected rate of return be higher or lower if you accept the liquidity preference hypothesis? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E Will the expected rate of return be higher or lower if you accept the liquidity preference hypothesis?…

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