Multiple number questions are not allowed under 1 post please
make separate post for each question. will answer question 1 part c
and question 2.
c. Your investment horizon is one year. You purchase the consol when the interest rate is 5 percent and sell it a year later, following a rise in the interest rate to 6 percent. What is your holding period return? | |
Holding Period Return = ((Income + (end of period value - original value)) / original value) * 100 | |
Holding Period Return = ($4 + ($66.67 - $80))/$80 | -11.66% |
2) Which of these $100 face value one-year bonds will have the highest yield to maturity and why? | |
a.6 percent coupon bond selling for $85 | |
Face value | 100 |
Coupon Rate | 6% |
Coupon Payment | 6 |
Period | 1 |
Current price (PV) | 85 |
Yield = Rate(1,6,-85,100) | 24.71% |
b. 7 percent coupon bond selling for $100 | |
Face value | 100 |
Coupon Rate | 7% |
Coupon Payment | 7 |
Period | 1 |
Current price (PV) | 100 |
Yield = Rate(1,7,-100,100) | 7.00% |
c.8 percent coupon bond selling for $115 | |
Face value | 100 |
Coupon Rate | 8% |
Coupon Payment | 8 |
Period | 1 |
Current price (PV) | 115 |
Yield = Rate(1,8,-115,100) | -6.09% |
Option (a.) has the highest yield to maturity. The yield to maturity depends both on the coupon payment and any capital gain or loss arising from the difference between the selling price and the face value of the bond. While (a.) has the lowest coupon rate, it is selling below face value, and so there is a capital gain. Option (b.) is selling at face value, so there is no capital gain and option (c.) is selling above face value and so there is a capital loss. As the calculations above show, the combination of the coupon payment and the capital gain on option (a.) produces the highest yield to maturity | |
80 The price of the consol is $ b. You are concerned that the interest rate may rise to 6 percent. Compute t...
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...
Assuming that the current interest rate is 6 percent, compute the present value of a five-year, 10 percent coupon bond with a face value of $1,000. What happens when the interest rate goes to 7 percent? What happens when the interest rate goes to 5 percent? Instructions: Enter your responses rounded to the nearest penny (two decimal places). PV at an interest rate of 6%-$ PV at an interest rate of 7%-$ The present value (Click to select) when the...
A A consol (perpetuity) with a yearly payment of $20, calculate the rate of return for the year if its yield to maturity at the beginning of the year is 29 and at the end of the year the interest rate unexpectedly rises to 4%. B. A 2% coupon bond, with a $1,000 face value, selling at par with 2 years to maturity, calculate the rate of return for the year if its yield to maturity at the beginning of...
The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy an annual coupon bond with a coupon rate of 8.1 percent for $905. The bond has 8 years to maturity and a par value of $1,000. What rate of return do you expect to earn...
The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy an annual coupon bond with a coupon rate of 8.4 percent for $920. The bond has 9 years to maturity and a par value of $1,000. What rate of return do you expect to earn...
Suppose that the interest rate on one year bonds is currently 3.5 percent and is expected to be 4 percent in one year and 6 percent in two years. Using the expectations hypothesis, compute the yield curve for the next three years. Instructions: Enter your responses rounded to the nearest two decimal places. Yield for one-year bond Yield for two-year bond - Yield for three-year bond- 3.5% % %
The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy an annual coupon bond with a coupon rate of 8.1 percent for $855. The bond has 7 years to maturity and a par value of $1,000. What rate of return do you expect to earn...
The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy an annual coupon bond with a coupon rate of 8.3 percent for $785. The bond has 8 years to maturity and a par value of $1,000. What rate of return do you expect to earn...
The YTM on a bond is the interest rate you earn on your investment if interest rates don't change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy an annual coupon bond with a coupon rate of 8.4 percent for $895. The bond has 10 years to maturity and a par value of $1,000. What rate of return do you expect to earn...
The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy a bond with an annual coupon rate of 11 percent for $1,200. The bond has 19 years to maturity. What rate of return do you expect to earn on your investment? Assume a par value...