Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Question
Chapter 8, Problem 16QAP
Summary Introduction
To calculate: The interest income that you will have to declare on the tax return on the zero-coupon bonds
Introduction: An accrual bond, also known as a zero-coupon bond, is a financial security that doesn't pay interest but trades at a significant discount, making money when it matures and is redeemed for its full face value.
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Assume you will be paying $10,000 per year in tuition expenses at the end of each of the next two years. Bonds currently yield 8%.
a) What is the present value and duration of your obligation?
b) What maturity zero-coupon bond would immunize your obligation?
c) Suppose you buy a zero-coupon bond with value and duration equal to that of your obligation. Now suppose that interest rates immediately increase to 9%. What happens to your net position, that is, to the difference between the value of the bond and that of your tuition obligation?
d) What happens to your net position if rates instead fall to 7%?
You buy a zero coupon bond at the beginning of the year that has a face value of $1,000, a YTM of 13 percent, and 10 years to maturity. You hold the bond for the entire year. Assume semiannual compounding.
How much interest income will you have to declare on your tax return?
You buy a zero coupon bond at the beginning of the year that has a face value of $1,000, a YTM of 10 percent, and 14 years to maturity. You hold the bond for the entire year. Assume semiannual compounding.
How much interest income will you have to declare on your tax return? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Chapter 8 Solutions
Corporate Finance
Ch. 8 - Prob. 1CQCh. 8 - Prob. 2CQCh. 8 - Prob. 3CQCh. 8 - Yield to Maturity Treasury bid and ask quotes are...Ch. 8 - Coupon Rate How does a bond issuer decide on the...Ch. 8 - Real and Nominal Returns Are there any...Ch. 8 - Prob. 7CQCh. 8 - Prob. 8CQCh. 8 - Term Structure What is the difference between the...Ch. 8 - Crossover Bonds Looking back at the crossover...
Ch. 8 - Municipal Bonds Why is it that municipal bonds are...Ch. 8 - Prob. 12CQCh. 8 - Treasury Market Take a look back at Figure 8.4....Ch. 8 - Prob. 14CQCh. 8 - Bonds as Equity The 100-year bonds we discussed in...Ch. 8 - Bond Prices versus Yields a. What is the...Ch. 8 - Interest Rate Risk All else being the same, which...Ch. 8 - Prob. 1QAPCh. 8 - Prob. 2QAPCh. 8 - Prob. 3QAPCh. 8 - Prob. 4QAPCh. 8 - Prob. 5QAPCh. 8 - Prob. 6QAPCh. 8 - Prob. 7QAPCh. 8 - Prob. 8QAPCh. 8 - Prob. 9QAPCh. 8 - Prob. 10QAPCh. 8 - Prob. 11QAPCh. 8 - Prob. 12QAPCh. 8 - Prob. 13QAPCh. 8 - Prob. 14QAPCh. 8 - Prob. 15QAPCh. 8 - Prob. 16QAPCh. 8 - Prob. 17QAPCh. 8 - Prob. 18QAPCh. 8 - Prob. 19QAPCh. 8 - Prob. 20QAPCh. 8 - Prob. 21QAPCh. 8 - Prob. 22QAPCh. 8 - Prob. 23QAPCh. 8 - Prob. 24QAPCh. 8 - Prob. 25QAPCh. 8 - Prob. 26QAPCh. 8 - Prob. 27QAPCh. 8 - Prob. 28QAPCh. 8 - Prob. 29QAPCh. 8 - Prob. 30QAPCh. 8 - Prob. 31QAPCh. 8 - Prob. 32QAPCh. 8 - Prob. 33QAPCh. 8 - Prob. 34QAPCh. 8 - Prob. 35QAPCh. 8 - Prob. 1MCCh. 8 - Prob. 3MCCh. 8 - Prob. 5MCCh. 8 - Prob. 6MCCh. 8 - Prob. 7MC
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