Homework Answers
10)
An annuity is a series of payments made at equal intervals. They are generally classified by frequency of payment dates.
We will use Excel to arrive at the solution.
Attaching the formulas and final values :-
Hence, we will pay $19,238 for this bond
6. Suppose that you purchase a 2 year coupon bond at the time it is issued...
6. Suppose that you purchase a 2 year coupon bond at the time it is issued for $1100. The face value of the bond is $1000, with annual coupon payments of $80. a. What is the bond's "coupon rate"? b. What is the bond's "current yield"? C. What is the bond's (nominal) "yield to maturity"? d. If you hold the bond for 1 year and sell it for $1035 (after collecting the first coupon payment), what is your "holding period...
Question 1: A $1,010 face value bond is selling in the market place for $934. It...
Question 1: A $1,010 face value bond is selling in the market place for $934. It matures in 3 years. If keep to maturity, what is the bond's yield to maturity? Question 2: A banker must earn at least a 2.7% return after expected inflation on short term loans. The inflation rate for the past 6 months has averaged 3.5%. The expected inflation rate for the next twelve months is 7.3%. Nominal interest rates for short term loans were 7.1%...
1 Two annuities and two zero coupon bonds are available to buy or sell today. Their...
1
Two annuities and two zero coupon bonds are available to buy or sell today. Their characteristics are: • The first annuity, A1, makes payments of $1000 twice per year for 5 years. The price of this annuity is $8743.37. • The second annuity, A2, makes payments of $100 twice per year for 2 years. This annuity has an internal rate of return of Rj = 4.36%. • The first zero coupon bond, Z1, has face value $10,000, and maturity...
1) You need to determine the market value of a $1,000 face value bond maturing in...
1) You need to determine the market value of a $1,000 face value bond maturing in 5 years. The market yield (interest rate) for this type of bond is 3.1%. What is its market value? (Round to the nearest penny). 2) A year ago, you purchased a $1,000 face value bond for $1024. A year later you sold the bond for $1,007 after receiving a coupon payment of $55. What was your rate of capital gain? (Answer in tenth of...
1) You need to determine the market value of a $1,000 face value bond maturing in...
1) You need to determine the market value of a $1,000 face value bond maturing in 5 years. The market yield (interest rate) for this type of bond is 3.1%. What is its market value? (Round to the nearest penny). 2) A year ago, you purchased a $1,000 face value bond for $1024. A year later you sold the bond for $1,007 after receiving a coupon payment of $55. What was your rate of capital gain? (Answer in tenth of...
Question 1: A banker must earn at least a 2.7% return after expected inflation on short...
Question 1: A banker must earn at least a 2.7% return after expected inflation on short term loans. The inflation rate for the past 6 months has averaged 3.5%. The expected inflation rate for the next twelve months is 7.3%. Nominal interest rates for short term loans were 7.1% last month. What is the minimum nominal interest rate that he should charge for a one year loan? Question 2: Fred bought a $1000 face value bond issued by Zest Corporation...
Show step by step process to answer each of the following. Correct Answers: 7)4.50% 8) 3.632%...
Show step by step process to answer each of the following.
Correct Answers:
7)4.50%
8) 3.632%
9)5.56%
(7-7) You are considering the purchase of a coupon bond that has a face value of $1,000, pays 3.80% semi-annual coupons, and matures in 8 years. If this bond is currently selling for $953.41, estimate its yield-to-maturity (YTM). (7-8) Currently, the nominal rate prevailing in the market is 7%. If inflation is expected to be 3.25%, estimate the actual real interest rate. (7-9)...
8. You have just received an inheritance of $20,000. You wish to invest in fixed income...
8. You have just received an inheritance of $20,000. You wish to invest in fixed income securities such as bonds, which you think are less risky than stocks. After some research, you have narrowed down your choices to the following three fixed income securities: One-year Treasury Bill: Face value of $1000 Yield to maturity of 1.74% Coupon Bond A: Two years to maturity Face value of $1000 Coupon rate of 3%, with semi-annual coupon payments Price multiple of face value...
1. What is the relationship between real interest rate, nominal interest rate and inflation rate? 2....
1. What is the relationship between real interest rate, nominal interest rate and inflation rate? 2. What are the reasons for very high nominal interest rates in the 1980s? 3. Someone buys a 5 year government treasury bond at $P t a. Can the price be above face value? Why? b. Can the price be below face value? Why? c. If he/she wants to sell it after 2 years, will he/she makes a positive rate of return or negative rate...
6 Suppose you purchase a 3-year, 5-percent coupon bond at par and hold it for two...
6
Suppose you purchase a 3-year, 5-percent coupon bond at par and hold it for two years. During that time, the interest rate falls to 4 percent. Calculate your annual holding period return. Instructions: Enter your response rounded to two decimal places Holding period return A 10-year zero-coupon bond has a yield of 6 percent. Through a series of unfortunate circumstances, expected inflation rises from 2 percent to 3 percent. The face value of the bond is $100 a. Assuming...
6. Suppose that you purchase a 2 year coupon bond at the time it is issued for $1100. The face value of the bond is $1000, with annual coupon payments of $80. a. What is the bond's "coupon rate"? b. What is the bond's "current yield"? C. What is the bond's (nominal) "yield to maturity"? d. If you hold the bond for 1 year and sell it for $1035 (after collecting the first coupon payment), what is your "holding period...
1
Two annuities and two zero coupon bonds are available to buy or sell today. Their characteristics are: • The first annuity, A1, makes payments of $1000 twice per year for 5 years. The price of this annuity is $8743.37. • The second annuity, A2, makes payments of $100 twice per year for 2 years. This annuity has an internal rate of return of Rj = 4.36%. • The first zero coupon bond, Z1, has face value $10,000, and maturity...
Show step by step process to answer each of the following.
Correct Answers:
7)4.50%
8) 3.632%
9)5.56%
(7-7) You are considering the purchase of a coupon bond that has a face value of $1,000, pays 3.80% semi-annual coupons, and matures in 8 years. If this bond is currently selling for $953.41, estimate its yield-to-maturity (YTM). (7-8) Currently, the nominal rate prevailing in the market is 7%. If inflation is expected to be 3.25%, estimate the actual real interest rate. (7-9)...
6
Suppose you purchase a 3-year, 5-percent coupon bond at par and hold it for two years. During that time, the interest rate falls to 4 percent. Calculate your annual holding period return. Instructions: Enter your response rounded to two decimal places Holding period return A 10-year zero-coupon bond has a yield of 6 percent. Through a series of unfortunate circumstances, expected inflation rises from 2 percent to 3 percent. The face value of the bond is $100 a. Assuming...
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