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Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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You have just been offered a $1,000 par
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- You are considering a 15-year, $1,000 par value bond. Its coupon rate is 10%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 7.1225%, how much should you be willing to pay for the bond? Do not round intermediate calculations. Round your answer to the nearest cent.arrow_forwardYou are considering a 30-year, $1,000 par value bond. Its coupon rate is 10%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 9.2025%, how much should you be willing to pay for the bond? Do not round intermediate calculations. Round your answer to the nearest cent.arrow_forwardA $1,000 bond has a coupon of 4 percent and matures after tên years. ASsume that the bond pays interest annually. a. What would be the bond's price if comparable debt yields 6 percent? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $ b. What would be the price if comparable debt yields 6 percent and the bond matures after five years? Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. c. Why are the prices different in a and b? The price of the bond in a is -Select- v than the price of the bond in b as the principal payment of the bond in a is -Select- v than the principal payment of the bond in b (in time). d. What are the current yields and the yields to maturity in a and b? Round your answers to two decimal places. The bond matures after ten years: CY: % YTM: % The bond matures after five years: CY: YTM:arrow_forward
- If you buy municipal bond (tax free) that cost $1,000 and will pay a 4.7% coupon every year for the next 10 years (so the maturity date is in 10 years). At maturity the bond returns the original $1,000. If there is a 2.5% annual inflation, a) what real rate of return will you receive? b) How much real $ profit did you make from the bond?arrow_forwardAn insurance company is thinking about purchasing bonds A and B with zero coupons to cover some of its future liabilities. The redemption periods for these zero-coupon bonds are seven and twenty years, respectively.£11 million is due in 11 years, and £14 million is due in 16 years, according to the list of its liabilities.Determine bond B's value at an effective 5% annual interest rate so that Redington's theory of immunization's first two requirements are met. (correct answer=6.419) (using formulas, no tables)arrow_forwardWhat is the price of a bond with the following information? It is 1.5 years until expiration. The coupon rate is 7 percent and coupon payments are made once per year. The market rate of return is 5.9 percent. The bond has a face value of 2000 SEK. Tips Draw a time axis so that you do not make any mistakes with the discounting. Don't look at the cash flows as an annuity, but as two separate cash flows. There is always a coupon payment when the bond matures, how long is it then until the next coupon payment? (Answers are rounded to integers) a) 265 b) 2100 c) 1971 d) 1990 e) 2216arrow_forward
- An investor is considering the purchase of a bond. The bond has a face value of $1000 and an interest rate of 6%; it pays interest once a year and matures in 8 years. This investor’s real MARR is 25%. If the investor expects an inflation rate of 4% per year for the next 8 years, how much should he be willing to pay for the bond?arrow_forwardAssume that all interest rates are certain - all investors know how interest rates will change over time. Two years ago, you purchased a 10-year bond with a face value of $1,000.00 and annual coupons of 7.4%. When you purchased the bond, the one year spot rate was 6.3% and the two year spot rate was 9.8%. You reinvested the first coupon payments at the prevailing rate and then sold the bond after two years at a yield to maturity of 10.9%. If your realised compound yield on the bond was 14.4%, what was the bond's initial purchase price? O a. $747.53 O b. $749.59 O c. $751.34 O d. $755.36 O e. $753.70 O f. $746.65 O g. $754.38 Oh. $757.80arrow_forwardA bond costs $925, with a face value of $1000 and pays 4% of the face value each year. If the bond will be paid off at the end of 10 years and your MARR is 5%, should you buy the bond? Please solve using NPV method if possible, and please do without excel or calculators since I'm trying yo understand the topic . Thank you!arrow_forward
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