You find a bond with 29 years until maturity that has a coupon rate of 7.5 percent and a yield to maturity of 7.2 percent. Suppose the yield to maturity on the bond increases by .25 percent. a. What is the new price of the bond using duration and using the bond pricing formula? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Estimated price Actual price b. Now suppose the original yield to maturity is increased by 1 percent. What is the new price of the bond? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Estimated price Actual price
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- 5 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). a. Suppose that today you buy an annual coupon bond with a coupon rate of 8.2 percent for $845. The bond has 10 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., 32.16. 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 bond 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., 32.16. eBook a. Rate of return b-1. Price b-2. Holding…QUESTION 7 Consider the market for a bond which has a face value of $2,000, pays a coupon of $100, and matures in 1 year (that is, you will get the face value and one coupon payment next year). Suppose the demand for such bonds is given by P=4,000-2Q, and that the supply of such bonds is given by P=1,000+Q. What is the yield to maturity if one were to purchase the bond at the equilibrium price? 5% .05% 10% .10%An XYZ April 2051 bond with a 9.96 percent coupon interest rate and a par value of $1,000.00 recently had a price of 88.688. Calculate the following: a. When will the bond mature? b. How much will you have to pay to purchase this bond? c. What is the current yield based on the price that you calculate in part b? *** a. The bond will mature in the year b. To purchase this bond, you would have to pay $ nearest cent.) c. The current yield is%. (Round to two decimal places.) (Type a whole number.) (Round to the
- The yield curve for default-free zero-coupon bonds is currently as follows: Maturity (years) 1 2 3 YTM 9% 11 13 Assume that the pure expectations hypothesis of the term structure is correct. What is the market expectation for the YTM of a one-year zero-coupon bond to be issued a year from now? Enter your answer as a percentage. For example, if your answer is 0.1234 or 12.34%, enter "12.34".Suppose you purchase a $1000 Face-Value Zero-Coupon Bond with maturity 30 years and yield to maturity 4% quoted with annual compounding. Show the bond cash flows on a time line and compute the current price of the bond Draw a graph to illustrate how the price of this bond will change as it gets closer to maturity – Price (on y axis) vs Time (on x axis). Why is a zero-coupon bond more sensitive to interest rate changes than similar coupon bearing bonds (2 or 3 sentences)?Finance question :- the current yield curve for default-free zero coupon bonds are: 1-year 7%; 2-year 8%; 3-year 9%. after one year, what will be the ytm of a bond with 2 years left till matuirty if market expectations are accurate a. 9.01% b. 9.51% c. 10.01% d. 13.02% e. none of the above
- -7 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). a. Suppose that today you buy a bond with an annual coupon of 12 percent for $1,140. The bond has 19 years to maturity. What rate of return do you expect to earn on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b- Two years from now, the YTM on your bond has declined by 1 percent and you 1. decide to sell. What price will your bond sell for? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b- What is the HPY on your investment? (Do not round intermediate calculations and 2. enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Expected rate of retum. b-1. Bond price b-2. HPY %QUESTION 4 Answer the problem below: All parts are related. Consider a 5 year to maturity Coupon bond with Face Value = $1000 and a 4% coupon rate; the bond was originally issued in 2020 and will mature in 2025. a. Suppose that interest rates today (in 2022) on these bonds are at 5%. What is the price of this bond today (in 2022)? SET UP THE PROBLEM to illustrate how the 2022 price is obtained (do not calculate it, but set it up substituting in for all values). b. The interest rate in 2024 [in two years] is expected to rise further to 6%. How would you calculate the expected price of bonds in 2024; just SET UP THE PROBLEM, you do not need to use a calculator to obtain the exact value. c. Continue with part b. According to the models discussed in class, what could have caused a rise expected future interest rate? (i.e. what could have caused the expected future price to change)? Discuss.Problem 1 Suppose you are given the following information about the default-free, coupon-paying yield curve: Maturity (years) Coupon Rate (annual payments) 1 2 3 4 0.00% 10.00% 6.00% 12.00% ΥTM 2.000% 3.908% 5.840% 5.783% a) Determine the yield to maturity of a two-year zero-coupon bond. b) What is the zero-coupon yield curve for years 1 through 4. c) What is the forward rate for year 3 (short rate from end of year 2 until end of year 3). d) What should have been the zero-coupon yield for year 4 so that the forward rate in year 4 is the same than year 3. Problem 2 Currently the yield curve observed in the market is as follows: y1 = 7%, y2 = 8%, and Y3 = 9%. You are choosing between a two-year and three-year maturity bonds all paying annual coupons of 8%, once a year. You strongly believe that at the end of year the yield curve will become flat at 9%. Which bond should you buy if you plan to close out your position in one year right after receiving the coupon payment? Problem 3 Your…
- Consider a bond that pays annually an 8% coupon with 20 years to maturity. The percentage change in the price of the bond if its yield to maturity increases from 5% to 7% is closest to? Set your decimal places to 4 in your financial calculator. a 19.50% b 24.22% c -24.22% d -19.50%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 9.1% annual coupon bond for $1,170. 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? HPY2. Consider a bond with a 7.5% annual coupon rate and a face value of $1,000. Calculate the bond price and duration & show your work. Years to Maturity Interest rate Bond Price Duration 4 6. 6. 9. What relationship do you observe between yield to maturity and the current market value? What is the relationship between YTM and duration?