a. Expected required yield = 0.3*7% + 0.7*10% = 9.10%
b. The variance on the required yield is calculated as shown below:
Probability P | Return R | R - E R | (R - E R)^2 | (R - E R)^2*P |
0.3 | 7.00% | -0.021 | 0.000441 | 0.0001323 |
0.7 | 10.00% | 0.009 | 8.1E-05 | 5.67E-05 |
Expected Return (E R) | 9.10% | |||
Variance | 0.000189 |
Variance = 0.000189
c. The price of the bond in each situation :
At 7%, Price of the bond = FV/(1+r)^n = 1000/(1+0.07)^4 = $762.90
At 10%, Price of the bond = 1000/(1+0.10)^4 = $683.01
Probability | Required Yield | Bond Price |
0.3 | 7.00% | $ 762.90 |
0.7 | 10.00% | $ 683.01 |
d. Expected price is calculating the expected yield in part (a)
Expected price = 1000/(1+0.091)^4 = $705.83
Please look at two pics, if the answers are right you will get thumbs up, wrong...
must be completed by hand
You own a $1,000-par zero-coupon bond that has 5 years of
remaining maturity. You plan on selling the bond in one year and
believe that the required yield next year will have the following
probability distribution:
Note that the required yield can be interpreted as the discount
rate.
a. What is your expected required yield when you sell the
bond?
b. Calculate the variance of the required yield.
c. Calculate the bond’s price in each...
Please see the two pics, one is the question and other one is
the formula, please show me the steps
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You own a S1,000 face value, zero-coupon bond that has 5 years of remaining maturity. You plan on selling the bond in one year and believe that the required yield next year will have the following probability distribution: Probability 0.1 Required Yield 5.50% 5.75% 0.1 0.6 6.00% 625°/o 0.1 0.1 6.50% a. What is your expected price when you sell the bond? b. What is the standard deviation?
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e. How would the price of
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Please show work ( by adding numbers or CELL with
formula if needed). Thank you, will rate.
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Please answer in electronic text. Thank you!
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Question 26 5.5 pts A 10-year corporate bond has an annual coupon of 9%. The bond is currently selling at par ($1,000). Which of the following statements is CORRECT? The bond's yield to maturity is above 9%. O The bond's expected capital gains yield is zero. O The bond's current yield is less than its expected capital gains yield. O The bond's current yield is above 9%. O If the bond's yield to maturity declines, the bond will sell at...