Homework Answers
Question 9:
Correct answer is option B ($61.8).
Option A is wrong because in the case of zero coupon bond even though there is no annual income for the bondholder but for tax purposes the annual appreciation in bond price is considered.
Option C is wrong because it considers the full year appreciation in bond price.
Option D is wrong as this value does not make any sense.
Question 10:
Option C is correct answer as Monique will pay the price asked by dealer. 98.08 ask price for the maturity value of 1000 is equivalent to $980.80.
Option A is wrong as it considers the bid price that is the price at which Monique can sell the treasury bond to the dealer.
Options B and D does not make any sense.
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QUESTION 9 Peter buys ten zero-coupon bonds with a maturity of 30 years for a total of $4,119.87. Assume he buys t...
Paul buys ten zero-coupon bonds with a maturity of 30 years for a total of $4,119.87. Assume he buys the bonds on J...
Paul buys ten zero-coupon bonds with a maturity of 30 years for a total of $4,119.87. Assume he buys the bonds on June 30th. How much interest will he have to report for tax purposes for the first year? Assume annual compounding for simplicity. a. $0 because it is a zero-coupon bond b. $61.80 C. $123.60 d. $300.00
U.S. Treasury 30 year maturity, zero coupon bonds are currently selling in the marketplace with a yield to maturity of 7...
U.S. Treasury 30 year maturity, zero coupon bonds are currently selling in the marketplace with a yield to maturity of 7.00%. Even though the bonds have a coupon rate of 0.00%, please assume semi–annual compounding, which is the bond market convention? If inflation increased unexpectedly, forcing the nominal required rate of return on these Treasury bonds to increase by 1.00% to 8.00%, by what dollar amount would the current market price of these bonds decrease? Enter your answer rounded to...
Zero-coupon bonds: a. A ten-year, zero coupon bond trades at a Yield-to-Maturity (YTM) of 3.5%. Assume...
Zero-coupon bonds: a. A ten-year, zero coupon bond trades at a Yield-to-Maturity (YTM) of 3.5%. Assume you buy $1000 worth of the bond today. How much will it be worth 10 years from now at maturity? b. A 5-year, zero coupon bond trades at a Yield-to-Maturity (YTM) of 2.5%. Assume you buy $1000 worth of the bond today. How much will it be worth 5 years from now at maturity? C. Assume you invest $1,131.41 today and receive $1,410.60 five...
Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows: Maturity (years) 1 2...
Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows: Maturity (years) 1 2 3 4 5 Yield to Maturity 4.37% 4.71% 4.92% 5.28% 5.51% a. What is the price per $100 face value of a 3-year, zero-coupon risk-free bond? b. What is the price per $100 face value of a 5-year, zero-coupon, risk-free bond? c. What is the risk-free interest rate for a 4-year maturity? Note: Assume annual compounding. a. What is the price per $100 face...
Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows: Maturity (years) 1 2...
Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows: Maturity (years) 1 2 3 4 Yield to Maturity 4.13% 4.61% 4.86% 5.25% 5.62% a. What is the price per $100 face value of a 3-year, zero-coupon risk-free bond? b. What is the price per $100 face value of a 4-year, zero-coupon, risk-free bond? c. What is the risk-free interest rate for a 2-year maturity? Note: Assume annual compounding. a. What is the price per $100 face value...
Grummon Corporation has issued zero-coupon corporate bonds with a five-year maturity (assume $ 100 face value...
Grummon Corporation has issued zero-coupon corporate bonds with a five-year maturity (assume $ 100 face value bond). Investors believe there is a 20 % chance that Grummon will default on these bonds. If Grummon does default, investors expect to receive only 50 cents per dollar they are owed. If investors require a 6 % expected return on their investment in these bonds, what will be the a. price of these bonds? b. yield to maturity on these bonds? Note: Assume...
An investor currently has $50M in the Alibaba stock and $50M in one-year zero-coupon bonds. Assume...
An investor currently has $50M in the Alibaba stock and $50M in one-year zero-coupon bonds. Assume that the one-year interest rate is 8% (annually compounding). Assume that the current quote on the Alibaba stock is 1,250, each futures contract is written on 200 shares of the Alibaba stock and the dividend yield on the stock is approximately 3% per year, i.e., $1,000 invested in the stock yields $30 in dividends at the end of the year. (a) Suppose you invest...
14 years ago, Blue Lake Corp. issued 30 year to maturity zero-coupon bonds with a par...
14 years ago, Blue Lake Corp. issued 30 year to maturity zero-coupon bonds with a par value of $5,000. The current interest rate on this type of bond is 7.82 percent, compounded annually. What is the current price of the bond? Round the answer to two decimal places.
Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows: Maturity (years) 1 2 3 4 5 Yield to Maturity 4.75% 5.07% 5.35% 5.73% 6.02% a. What is the price per $100 face value of a 3-year, zero-coupon risk-free bond? b.
Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows:Maturity (years)12345Yield to Maturity4.75%5.07%5.35%5.73%6.02%a. What is the price per $100 face value of a 3-year, zero-coupon risk-free bond?b. What is the price per $100 face value of a 5-year, zero-coupon, risk-free bond?c. What is the risk-free interest rate for a 4-year maturity?Note: Assume annual compounding.
Question 35 At maturity, each of the following zero coupon bonds (pure discount bonds) will be...
Question 35 At maturity, each of the following zero coupon bonds (pure discount bonds) will be worth $1,000. For each bond, fill in the missing quantity in the following table. Assume semi-annual compounding. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 15.25 or 15.25%.) Price Maturity (years) Yield to maturity 8 % $445 $405 7% 15 11% Question 40 Investors demand a rate of return of 17 percent on...
Paul buys ten zero-coupon bonds with a maturity of 30 years for a total of $4,119.87. Assume he buys the bonds on June 30th. How much interest will he have to report for tax purposes for the first year? Assume annual compounding for simplicity. a. $0 because it is a zero-coupon bond b. $61.80 C. $123.60 d. $300.00
Zero-coupon bonds: a. A ten-year, zero coupon bond trades at a Yield-to-Maturity (YTM) of 3.5%. Assume you buy $1000 worth of the bond today. How much will it be worth 10 years from now at maturity? b. A 5-year, zero coupon bond trades at a Yield-to-Maturity (YTM) of 2.5%. Assume you buy $1000 worth of the bond today. How much will it be worth 5 years from now at maturity? C. Assume you invest $1,131.41 today and receive $1,410.60 five...
Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows: Maturity (years) 1 2 3 4 5 Yield to Maturity 4.37% 4.71% 4.92% 5.28% 5.51% a. What is the price per $100 face value of a 3-year, zero-coupon risk-free bond? b. What is the price per $100 face value of a 5-year, zero-coupon, risk-free bond? c. What is the risk-free interest rate for a 4-year maturity? Note: Assume annual compounding. a. What is the price per $100 face...
Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows: Maturity (years) 1 2 3 4 Yield to Maturity 4.13% 4.61% 4.86% 5.25% 5.62% a. What is the price per $100 face value of a 3-year, zero-coupon risk-free bond? b. What is the price per $100 face value of a 4-year, zero-coupon, risk-free bond? c. What is the risk-free interest rate for a 2-year maturity? Note: Assume annual compounding. a. What is the price per $100 face value...
Question 35 At maturity, each of the following zero coupon bonds (pure discount bonds) will be worth $1,000. For each bond, fill in the missing quantity in the following table. Assume semi-annual compounding. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 15.25 or 15.25%.) Price Maturity (years) Yield to maturity 8 % $445 $405 7% 15 11% Question 40 Investors demand a rate of return of 17 percent on...
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