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 %

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 %

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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Consider a bond at par initially issued for a 30-year term. Its nominal rate (annual coupon) is 5%. You buy this bond when it still has 20 years of residual maturity. At that time, the market rate is 8%. A few days after your purchase, the market rate drops to 6% (this assumption is then always verified). You will sell your bond 12 years later (8 years before maturity). What will have been the overall annual profitability of your investment?
I am thinking about buying a $100 heineken corporate bond. The bond was issued on Nov. 2005 with a coupon rate of 7.5% per year and it matures on Oct. 31, 2025. If I purchase the bond on Nov. 1, 2021 for $93.12, will I earn a return at least 8.0% per year (nominal) on the investment? Assume coupons are paid twice per year (on April 30 and October 31). You must draw a cash flow diagram to get full credit for this problem.
You purchased a zero-coupon bond one year ago for $283.33. The market interest rate is now 9 percent. Assume semiannual compounding. If the bond had 15 years to maturity when you originally purchased it, what was your total return for the past year? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
After careful consideration, you decide that you want to diversify your portfolio and invest in the bonds of HCA Healthcare. The bonds pay interest annually, will mature in 25 years, and have a coupon rate of 4% on a face value of $1,000. Currently, the bonds are selling for $910. If you are looking for a required return of 7% for this bond, what is the highest price you would be willing to pay?What is the current yield of these bonds?What is the yield to maturity on these bonds if you purchase them at the current price? (Use the Rate function) If you hold the bonds for two years, and interest rates do not change, what total rate of return will you earn, assuming that you pay the market price? If the bonds can be called in 4 years with a call premium of 6% of the face value, what is the yield to call?
An investor is considering the purchase of a(n) 6.000%, 15-year corporate bond that's being priced to yield 8.000%. She thinks that in a year, this bond will be priced in the market to yield 7.000%. Using annual compounding, find the price of the bond today and in 1 year. Next, find the holding period return on this investment, assuming that the investor's expectations are borne out. The price of the bond today is $ (Round to the nearest cent.)
You purchased an annual-interest coupon bond one year ago with 7 years remaining to maturity at the time of purchase. The coupon interest rate is 10%, and par value is $1,000. At the time you purchased the bond, the yield to maturity was 9%. If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 8%, your annual total rate of return on holding the bond for that year would have been O 12.58% O 13.53% O4.01% O 14.64% 5.12%
You have paid $120 for an 5.5% coupon bond with a face value of $1,000 that matures in five years. You plan on holding the bond for one year. If you want to earn a 5.5% rate of return on this investment, what price must you sell the bond for?
You bought one of Great White Shark Repellant Co.'s 7.4 percent coupon bonds one year ago for $1,041. These bonds make annual payments and mature 20 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 6 percent. The bonds have a par value of $1,000. If the inflation rate was 4 percent over the past year, what was your total real return on investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
You purchased a zero coupon bond one year ago for $120.36. The bond has a par value of $1,000 and the market interest rate is now 13 percent. If the bond had 17 years to maturity when you originally purchased it, what was your total return for the past year? Assume semiannual compounding.
Suppose that the coupon rate for a TIPS is 5%. Suppose further that an investor purchases $10,000 of par value (initial principal) of this issue today. Also, there is deflation for the entire period of investment (you can assume 2% average deflation on annual basis). What is the principal that will be paid by the Department of the Treasury at the maturity date?
Today you buy ten zero-coupon bonds which will mature in exactly 5 years. Each of these ten bonds has a face value of $100. The price you pay today for each of these bonds is $82. Assume a year goes by. Now there are only 4 years left before these bonds mature. You sell these bonds in the market for $75 per bond. What is the return you have realized on your investment in these bonds? -7.00% -9.26% -8.54% We do not have sufficient information about interest rates to calculate this answer. -9.33%
You bought one of Great White Shark Repellant Company's 8 percent coupon bonds one year ago for $1,044. These bonds make annual payments and mature 13 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 6 percent. The bonds have a par value of $1,000. If the inflation rate was 3.4 percent over the past year, what was your total real return on 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 %

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