Assume the par
An investor must choose between two bonds: Bond A pays
a. Compute the current yield on both bonds.
b. Which bond should she select based on your answer to part a?
c. A drawback of current yield is that it does not consider the total life of the bond. For example, the yield to maturity on Bond A is 8.33 percent. What is the yield to maturity on Bond B?
d. Has your answer changed between parts b and c of this question in terms of which bond to select?
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- Suppose that all bonds have $1,000 of face value. The current prices of zero coupon bonds are as follows: $960 for a one-year bond; $910 for a two-year bond; $850 for a three-year bond. a. What is the price of a three-year bond with 8% annual coupon payment? b. What is the YTM of the two-year zero coupon bond? c. Consider the following two-year bonds: (i) a zero coupon bond as above; (ii) a bond with 6% annual coupon payment. Whose YTM is higher?arrow_forwardSuppose a bond with no expiration date has a face value of $10,000 and annually pays a fixed amount of interest of $750, calculate the interest rate that the bond would yield to a bond buyer. Show all work.arrow_forwardSuppose a bond with no expiration date has a face value of $10,000 and annually pays a fixed amount of interest of $700.  a. In the table provided below, calculate and enter either the interest rate that the bond would yield to a bond buyer at each of the bond prices listed below or the bond price at each of the interest yields shown.     Instructions: Enter your answers in the gray-shaded cells. For bond prices, round your answers to the nearest hundred dollars. For interest yields, round your answers to 2 decimal places.arrow_forward
- Assume you have a bond with a semi-annual interest payment of $50, a par value of $1 comma 000, and a current market price of $870. What is the current yield of the bond?arrow_forwardBill Board must choose between two bonds: Bond A pays $90 annual interest with semiannual payment and has a market value of $840. It has 12 years to maturity Bond B pays $80 annual interest with semiannual payment and has a market value of $890. It has 3 years to maturity Assume the par value of the bonds is $1,000 a. Compute the current yield on both bonds. (Round the final answers to 2 decimal places) Current yield Bond A Bond B b. Which bond should he select based on the answer to part a? O Bond A O Bond B C.A drawback of current yield is that it does not consider the total life of the bond. What is the yield to maturity on these bonds? (Do not round intermediate calculations. Round the final answers to 2 decimal places) Yield to maturity Bond A Bond B d. Has the answer changed between parts band c of this question? O Yes O NOarrow_forwardAssume that you have two bond investments and the information follows: Bond A has a par value of $8,000, interest paid semi annual, maturity 2 years, stated interest rate is 6%. Bond B has a par value of $8,000, interest paid semi annual, maturity 10 years, stated interest rate is 6%. The interest rates are increasing to 7%. Assume that you can only sell one of the bonds, which bond will you sell before the interest rate changes to 7%? Explain and support your answer with a present value calculation.arrow_forward
- Two bonds have par values of $1,000. One is a 6%, 16-year bond priced to yield 9.5%. The other is a(n) 8%, 23-year bond priced to yield 4.5%. Which of these two has the lower price? (Assume annual compounding in both cases.)arrow_forwardConsider the four bonds having annual payments as shown in the following table Year Bond A Bond B Bond C Bond D Year 1 100 50 0 0 + 1000 Year 2 100 50 0 0 Year 3 100+1000 50+ 1000 0 + 1000 0 (a) If each of the bonds is traded to produce a 15% yield, determine the price of each bond. (b) If Bond C is sold for $900, what is the yield to maturity? (c) What is the yield to maturity if Bond D is sold for $900?arrow_forwardB. Directions: Compute for the following given statement and justify your answer. 1. Consider two bonds. Bond A has a face value of P100,000 and a stated rate of 12%. Bond B has a face value of P100,000 and a stated rate of 8%. Both bonds have the same maturity. Which bond has the greatest interest rate risk? 2. Consider two bonds. Bond X has a face value of P100,000 and five years remaining to maturity. Bond Y has a face value of P100,000 and ten years remaining to maturity. Both bonds have the same stated rate of 12%. Which bond has the greatest interest rate risk?arrow_forward
- Suppose you have the following liabilities: Liability 1: A one-time liability maturing in 4 years with the present value of $100. Liability 2: A one-time liability maturing in 8 years with the present value of $100. To immunize your liabilities using the following two bonds, what would be the weights of the two bonds in your immunizing bond portfolio? Bond A: A zero-coupon bond with a face value of $100 and a time to maturity of 3 years. Bond B: A zero-coupon bond with a face value of $100 and a time to maturity of 12 years. A. 33% in Bond A and 67% in bond B B. 70% in Bond A and 30% in bond B C. 30% in Bond A and 70% in bond B D. 67% in Bond A and 33% in bond B E. 50% in Bond A and 50% in bond Barrow_forward(Valuing bonds) A 14-year, $1000 par value Fingen bond pays 9 percent interest annually. The market price of the bond is $1100, and the market's required yield to maturity on a comparable-risk bond is 10 percent. a. Compute the bond's yield to maturity. b. Determine the value of the bond to you, given your required rate of return. c. Should you purchase the bond?arrow_forwardYou are trying to compare the interest rate risks of two bonds: (i) a 15-year 8% bond, and (ii) a 10-year 6% bond. Both bonds pay semi-annual interest payments. The current market interest rate for the 15-year bond is 7.2% and the market interest rate for the 10 year old bond is 5.8% a. determine the (macaulay) durations of the two bonds b. based on your findings in a and b which bond has a greater interest rate risk? explain. Please show excel solutions thank you!!arrow_forward
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