Question

A. You are considering the purchase of a Pure Discount Bond with a Face Value of...

A. You are considering the purchase of a Pure Discount Bond with a Face Value of $10,000, which matures in ninety-four days. If you desire a return of 2.75%, how much would you bid for the bond today? (Round your answer to two decimal place, e.g. 9,274.36)

B. Suppose that you decided to purchase the bond described above for the calculated price. Now assume that immediately after you purchased the bond, the rate rises by 20 Basis Points. What will now be the price of the bond after this rise in rates? (Round your answer to two decimal place, e.g. 9,274.36)

0 0
Add a comment Improve this question Transcribed image text
Answer #1

a]

Price of discount bond = face value / (1 + required return)n/3650, where n = days until maturity.

Price of discount bond = $10,000 / (1 + 2.75%)94/365

Price of discount bond = $9,930.38.

b]

Price of discount bond = $10,000 / (1 + 2.95%)94/365

Price of discount bond = $9,925.41

Add a comment
Know the answer?
Add Answer to:
A. You are considering the purchase of a Pure Discount Bond with a Face Value of...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • Finance, You are considering the purchase of a Pure Discount Bond with a Face Value of...

    Finance, You are considering the purchase of a Pure Discount Bond with a Face Value of $10,000, which matures in three years. If you desire a return of 3.35%, how much would you bid for the bond today? (Round your answer to two decimal places, e.g. 9274.36) It's not 9058.76 nor 9051.38, really need help with this question can anyone tell me what am I doing wrong.

  • You are considering the purchase of a Pure Discount Bond with a Face Value of $10,000,...

    You are considering the purchase of a Pure Discount Bond with a Face Value of $10,000, which matures in forty-three days. In the markets this bond is selling for $9,966.95. If you purchase the bond at this price what is the annualized Yield-to-Maturity (YTM) on the investment? (The answer is a percent, round your answer to two decimal place, e.g. 4.75)

  • You are considering the purchase of a Pure Discount Bond with a Face Value of $1,000,...

    You are considering the purchase of a Pure Discount Bond with a Face Value of $1,000, which matures in seven years. In the markets this bond is selling for $771.27. If you purchase the bond at this price what is the Yield-to-Maturity (YTM) on the investment? (The answer is a percent, round your answer to two decimal places, e.g. 4.75)

  • 1.Reconsider the example above, where you are contemplating the purchase of the coupon bond with a...

    1.Reconsider the example above, where you are contemplating the purchase of the coupon bond with a face value of $1,000, which matures in 14 years, and pays 3.15% (annual) coupons. Now, If you require a return of 3.75% on this instrument, how much would you offer to pay for it today? [Present the answer rounded to two decimal places. For instance 1045.16] 2. You are considering the purchase of a Pure Discount Bond with a Face Value of $10,000, which...

  • You are considering the purchase of a zero Coupon Bond with a Face Value of $100,000,...

    You are considering the purchase of a zero Coupon Bond with a Face Value of $100,000, which matures in seven years. In the markets this bond is selling for $69,431.77. If you purchase the bond at this price what is the Yield-to-Maturity (YTM) on the investment? (The answer is a percent, round your answer to two decimal place, e.g. 4.75)

  • You are considering the purchase of a zero Coupon Bond with a Face Value of $100,000, which matures in seven years. In t...

    You are considering the purchase of a zero Coupon Bond with a Face Value of $100,000, which matures in seven years. In the markets this bond is selling for $69,431.77. If you purchase the bond at this price what is the Yield-to-Maturity (YTM) on the investment? (The answer is a percent, round your answer to two decimal place, e.g. 4.75)

  • You are considering the purchase of a Coupon Bond with a Face Value of $1,000, which...

    You are considering the purchase of a Coupon Bond with a Face Value of $1,000, which matures in sixteen years, and pays 3.85% (annual) coupons. If the bond is trading in the market at $955.35, what is the Yield-to-Maturity (YTM) on the investment? (The answer is a percent, round your answer to two decimal places, e.g. 4.75)

  • Suppose that you are considering the purchase of a coupon bond with a face value of...

    Suppose that you are considering the purchase of a coupon bond with a face value of $1,000 that matures after four years. The coupon payments are 6 percent of the face value per year. a. How much would you be willing to pay for this bond if the market interest rate (that is, the best alternative investment option) is also 6 percent? b. Suppose that you have just purchased the bond, and suddenly the market interest rate falls to 5...

  • A $10,000 face value 12% coupon corporate bond matures on March 15, 2028. You purchase the...

    A $10,000 face value 12% coupon corporate bond matures on March 15, 2028. You purchase the bond on July 16, 2015 (M1) at a quoted price of 99.375. Please, compute the bond’s YTM, its invoice price as of the settlement date (M4), and its dirty price on the purchase date (M1). State the yield as a percentage with 6 digits after the decimal point and the prices in dollars and cents. Show all calculator inputs. You must use your calculator’s...

  • Suppose that you are considering investing in a​ four-year bond that has a face value of...

    Suppose that you are considering investing in a​ four-year bond that has a face value of ​$1.000 and a coupon rate of 5.4​%. ​a.) If the market interest rate on similar bonds is 5.4​%, the price of the bond is $1000 ​(Round your response to the nearest ​cent.) The​ bond's current yield is 5.4​%. ​(Round your response to two decimal​ places.) ​b.) Suppose that you purchase the​ bond, and the next day the market interest rate on similar bonds falls...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT