If one adds up all payments made by a zero-coupon bond issuer, they will be much...
If one adds up all payments made by a zero-coupon bond issuer, they will be much higher than coupon payments made to coupon bond buyers. However, making such a comparison will be wrong. Why?
Homework Answers
Zero coupon bonds pay only at the time of maturity and no cash flows before that. But coupon bonds pay cash flows before maturity as well. So, such a comparison is wrong because it ignores time value of money. Coupon payments can be reinvested and the value of all the reinvested coupons will be higher.
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If one adds up all payments made by a zero-coupon bond issuer,
they will be much...
A 3.75 percent corporate coupon bond is callable in four years for a call premuim of one year of coupon payments. Assumi...
A 3.75 percent corporate coupon bond is callable in four years for a call premuim of one year of coupon payments. Assuming a par value of $1,000 what is the price paid to the bondholder if the issuer calls the bond?
Term Answer Description Zero coupon bond This term is used for bonds that are secured by a specific asset that the bond...
Term Answer Description Zero coupon bond This term is used for bonds that are secured by a specific asset that the bond issuer owns. Equipment Trust Certificate This type of municipal bond is backed by the full faith and credit of the issuing municipality. The coupon payments are likely to paid by the taxes that the municipality collects. Sinking Fund This is a bond provision that specifies the annual repayment schedule that will be used to service the bond and...
14, A one-year zero coupon bond yields 3.0%. The two-and three-year zero-coupon bonds yield 4.0% and 5.0% respectively. a. The forward rate for a one-year loan beginning in two years is closest t...
14, A one-year zero coupon bond yields 3.0%. The two-and three-year zero-coupon bonds yield 4.0% and 5.0% respectively. a. The forward rate for a one-year loan beginning in two years is closest to? (10 points) b. The four-year spot rate is not given above; however, the forward price for a one-year zero-coupon bond beginning in three years is known to be 0.8400. The price today of a four-year zero-coupon bond is closest to? (5 points)
14, A one-year zero coupon...
A 9-year maturity zero-coupon bond selling at a yield to maturity of 8.25% (effective annual yield)...
A 9-year maturity zero-coupon bond selling at a yield to maturity of 8.25% (effective annual yield) has convexity of 156.3 and modified duration of 8.06 years. A 30-year maturity 6.5% coupon bond making annual coupon payments also selling at a yield to maturity of 8.25% has nearly identical duration--8.04 years-but considerably higher convexity of 248.2 a. Suppose the yield to maturity on both bonds increases to 9.25%. What will be the actual percentage capital loss on each bond? What percentage...
4) Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments...
4) Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments and a 20% annual yield to maturity. a) Without any calculation, briefly explain whether this bond will be selling a premium or a discount b) Calculate the price of this bond. c Calculate the duration of this bond. d) Suppose the interest rates in the economy rise by 5 percentage points immediately after someone bought this bond. Show a calculation using duration for what...
4) Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments...
4) Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments and a 20% annual yield to maturity. a) Without any calculation, briefly explain whether this bond will be selling a premium or a discount. b) Calculate the price of this bond. c) Calculate the duration of this bond. d) Suppose the interest rates in the economy rise by 5 percentage points immediately after someone bought this bond. Show a calculation using duration for what...
Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $90.34, while a...
Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $90.34, while a 2-year zero sells at $81.43. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 16% per year. a. What is the yield to maturity of the 2-year zero?(Do not round intermediate calculations. Round your answers to 3 decimal places.) b. What is the yield to maturity of...
All rates are annual. The one-year zero coupon rate is 3%. The two year zero-coupon rate...
All rates are annual. The one-year zero coupon rate is 3%. The two year zero-coupon rate is 4%. The price of a two-year 3% coupon bond with the face value of $1,000 is $ ………{A}……… (accuracy to one cent).
One of your friends purchased a zero coupon corporate bond (i.e., a bond that has no...
One of your friends purchased a zero coupon corporate bond (i.e., a bond that has no interest payments) for $4,850. The bond has a face value of $50,000 and is due in 15 years. If the bond is held to maturity, what rate of return will your friend make on the investment? Question 22 options: 11.55% The rate of return cannot be calculated with the information given. 16.83% 931.00%
A 12.25-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield)...
A 12.25-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield) has convexity of 139.2 and modified duration of 11.34 years. A 40-year maturity 6% coupon bond making annual coupon payments also selling at a yield to maturity of 8% has nearly identical modified duration--12.30 years--but considerably higher convexity of 272.9. a. Suppose the yield to maturity on both bonds increases to 9%. What will be the actual percentage capital loss on each bond? il...
Term Answer Description Zero coupon bond This term is used for bonds that are secured by a specific asset that the bond issuer owns. Equipment Trust Certificate This type of municipal bond is backed by the full faith and credit of the issuing municipality. The coupon payments are likely to paid by the taxes that the municipality collects. Sinking Fund This is a bond provision that specifies the annual repayment schedule that will be used to service the bond and...
14, A one-year zero coupon bond yields 3.0%. The two-and three-year zero-coupon bonds yield 4.0% and 5.0% respectively. a. The forward rate for a one-year loan beginning in two years is closest to? (10 points) b. The four-year spot rate is not given above; however, the forward price for a one-year zero-coupon bond beginning in three years is known to be 0.8400. The price today of a four-year zero-coupon bond is closest to? (5 points)
14, A one-year zero coupon...
A 9-year maturity zero-coupon bond selling at a yield to maturity of 8.25% (effective annual yield) has convexity of 156.3 and modified duration of 8.06 years. A 30-year maturity 6.5% coupon bond making annual coupon payments also selling at a yield to maturity of 8.25% has nearly identical duration--8.04 years-but considerably higher convexity of 248.2 a. Suppose the yield to maturity on both bonds increases to 9.25%. What will be the actual percentage capital loss on each bond? What percentage...
4) Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments and a 20% annual yield to maturity. a) Without any calculation, briefly explain whether this bond will be selling a premium or a discount b) Calculate the price of this bond. c Calculate the duration of this bond. d) Suppose the interest rates in the economy rise by 5 percentage points immediately after someone bought this bond. Show a calculation using duration for what...
A 12.25-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield) has convexity of 139.2 and modified duration of 11.34 years. A 40-year maturity 6% coupon bond making annual coupon payments also selling at a yield to maturity of 8% has nearly identical modified duration--12.30 years--but considerably higher convexity of 272.9. a. Suppose the yield to maturity on both bonds increases to 9%. What will be the actual percentage capital loss on each bond? il...
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