1. Mira has been approached by her broker to purchase a bond for $795. He believes the bond should yield 8%. The bond pays 5% annual coupon rate and has 12 years left until maturity. What should Mira's analysis of the bond indicate to her? The bond is undervalued, purchase The bond is overvalued, do not purchase The bond is undervalued, do not purchase The bond is overvalued, purchase

1. Mira has been approached by her broker to purchase a bond for $795. He believes the bond should yield 8%. The bond pays 5% annual coupon rate and has 12 years left until maturity. What should Mira's analysis of the bond indicate to her? The bond is undervalued, purchase The bond is overvalued, do not purchase The bond is undervalued, do not purchase The bond is overvalued, purchase

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter12: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 10FPE

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Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for 1,135.90, producing a nominal yield to maturity of 8%. However, the bond can be called after 5 years for a price of 1,050. (1) What is the bonds nominal yield to call (YTC)? (2) If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?
What would be the value of the bond described in Part d if, just after it had been issued, the expected inflation rate rose by 3 percentage points, causing investors to require a 13% return? Would we now have a discount or a premium bond? What would happen to the bond’s value if inflation fell and rd declined to 7%? Would we now have a premium or a discount bond? What would happen to the value of the 10-year bond over time if the required rate of return remained at 13%? If it remained at 7%? (Hint: With a financial calculator, enter PMT, I/YR, FV, and N, and then change N to see what happens to the PV as the bond approaches maturity.)
Solve the following problem and show your solution. 1. Ms. Rodriguez invested in a PHP2,000 bond with a coupon rate and effective rate of 5%. How much is the issue price? 2. You have a one-year PHP1,000 bond with a coupon rate of 5% and was offered at an effective rate of 6% How much is the issue price? 3. Mr. Garcia invested in a P1,000 bond for one year with a coupon rate of 7% and was offered at an effective rate of 5%. How much should he pay upfront? (Jesue price)
Angelo purchased a 7% annual coupon bond one year ago for $987. At the time of purchase, the bond had six years to maturity. Over the past year inflation has been 3.2%. The market required return on this bond today is 8%. If Angelo sells the bond today at the market price, what real rate of return will he realize on this investment? -1.16% 1.13% 4.36% 4.33% 1.17%
ulie is contemplating buying a 10-year, $1,000 bond with a 7% coupon rate (coupons paid semiannually). The bond is trading at a price that implies a $906.92 bond value (i.e., per $1,000 of face). a. What is the bond's yield to maturity (YTM)? b. If the bond's YTM changes to 8%, what will the bond's value be (per $1,000 of face)? Question content area bottom Part 1 a. The YTM is enter your response here%. (Round to two decimal places.) b. The value per $1,000 of face at the new YTM is $enter your response here. (Round to the nearest cent.)
An investor is considering purchasing a $1,000 bond with an 8% coupon rate. The bond was issued 7 years ago with a 30 year original maturity. If the investor requires a return of 7% based on the riskiness oft he bond, how much should she pay for the bond?
• When the bond’s coupon rate is less than the bondholder’s required return, the bond’s intrinsic value will be less than its par value, and the bond will trade at . For example, assume Oliver wants to earn a return of 10.50% and is offered the opportunity to purchase a $1,000 par value bond that pays a 8.75% coupon rate (distributed semiannually) with three years remaining to maturity. The following formula can be used to compute the bond’s intrinsic value: Intrinsic ValueIntrinsic Value = = A(1+C)1+A(1+C)2+A(1+C)3+A(1+C)4+A(1+C)5+A(1+C)6+B(1+C)6A1+C1+A1+C2+A1+C3+A1+C4+A1+C5+A1+C6+B1+C6 Complete the following table by identifying the appropriate corresponding variables used in the equation. Unknown Variable Name Variable Value A B $1,000 C Semiannual required return Based on this equation and the data, it is to expect that Oliver’s potential bond investment is currently exhibiting an intrinsic value less than…
An investor holds 100 three-year zero coupon bonds with a face value of £100 which each trade at a price of £92.5. The investor wants to use a one-year zero coupon bond, face value £100, which trades at £95 and a five-year zero-coupon bond with a face value of £200, which trades at £180, to immunize the portfolio. c) If the investors has shorted the one-year and the five year bonds where has she invested the money received? Why has she chosen these forms of assets?