You can enter into a forward contract for a bond with a maturity in one year months that pays a coupon payment of $25 every six months. The bond has a forward price of $930. The current zero coupon rate for 6 months is 4% annually and the zero coupon risk free rate for one year is 5% annually (assume continuous compounding). The current price of the bond is $943. Use the
ANSWER IN TYPING OTHER WISE DOWNVOTE YOU
Trending nowThis is a popular solution!
Step by stepSolved in 5 steps
- Bond A is zero-coupon bond paying $100 one year from now. Bond B is a zero-coupon bond paying $100 two years from now. Bond C is a 10% coupon bond that pays $10 one year from now and $10 plus the $100 principal two years from now. The yield to maturity on bond A is 10%, and the price of bond B is $84.18. Assuming annual compounding, what is the yield to maturity on Bond B?arrow_forwardAssume that you wish to purchase a bond with a 17-year maturity, an annual coupon rate of 11.5%, a face value of $1,000, and semiannual interest payments. If you require a 9.5% return on this investment, what is the maximum price you should be willing to pay for the bond?arrow_forwardCalculate the duration of a coupon bond with the following features. What general conclusion can we make about the duration of coupon bonds relative to their time to maturity? Face value of $1000 Five years to maturity Coupon rate of 11%, paid semi-annually Current price of $970 (Hint: The effective annual yield should be 12.1604%.)arrow_forward
- You have a 15 year maturity with a yield of 0.06 yield (in decimals), with duration of 11 years and a convexity of 116.7. The bond is currently priced at $805.76. If the interest rate were to increase 92 basis points, compute the predicted new price for the bond, including convexity. (Be mindful of whether the sign is + or -) Note: your answer should be in % this time. If your answer is 5%, please simply input 5 as your answer.arrow_forwardSuppose 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?arrow_forwardYou want to invest in a bond for one year, and are deciding between the following two choices - Bond A and Bond B, both of which have a maturity of 1 year and a par value of $1,000.Bond A is a regular(i.e., nominal- return) with a couponrate of 3% per year, payable semi-annually. The current price of Bond A is $998. Bond B is a real-return bond with a coupon rate of 2% per year, payable annually. The current price of Bond B is $1,000. What is the inflation rate (over the next year) that will make the (nominal) ratesof return of the two choices the same?arrow_forward
- Consider a bond that has a life of 2 years and pays a coupon of 10% per annum (with semiannual payments); the yield is 5% per annum with semiannual compounding.(a) What is the bond’s price?(b) What is the bond’s duration?(c) Suppose that the bond price is the one you computed in part (a) and that the 6M, 12M, and 18M zero rates are respectively 4.2%, 4.8% and 5.6% per annum. What is the 2Y zero rate assuming all rates are quoted with semiannual compounding?arrow_forwardA bond pays $10,000 per year for the next 10 years. The bond costs $90,000 now. Inflation is expected to be 6 percent over the next 10 years. Answer parts (a) and (b). a. What is the current dollar internal rate of return? Use linear interpolation with x, = 1.95% and x, = 2.00% to find your answer. The current dollar internal rate of return is percent. (Type an integer or decimal rounded to two decimal places as needed.) b. What is the real internal rate of return? The real internal rate of return is percent. (Type an integer or decimal rounded to two decimal places as needed.)arrow_forwardYour broker offers to sell you a CleenWtr Bond for $1150. The bond has a coupon rate of 3%, semiannual interest payments, and a maturity of 9 years. If the interest rate on comparable debt is 2.0% is your broker fairly pricing the bond? (What is the curent price of the bond)arrow_forward
- For the following questions, assume the normal case that coupon payments are semi-annual. a. What is the yield to maturity on a 10-year, 5.3% coupon bond if the bond is currently selling for $1,000? b. For the bond above, suppose that immediately after purchase market rates change to 3.00%. If you hold the bond for 3 years and then sell it, what is your effective annual return on this investment? a. The YTM is % (enter response rounded to decimal places; i.e., x.xx%) b. Your effective annual return is % (enter response rounded to decimal places; i.e., x.xx%)arrow_forwardA 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?arrow_forwardYou hold a 14 year bond that is callable in 4 years. The call premium is one semi-annual coupon payment, and the coupon rate is0.14. The current YTM is 0.04. What is the yield to call? Group of answer choices -0.0675 -0.0615 -0.0635 -0.0588 -0.0654arrow_forward
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education