Bhupatbhai As a bond fund manager, you are considering corporate bonds issued by Changing Universe (CU). Each CU bond is a 4-yearbond with a par value of $1 million. Its interest payments are based on the following schedule: $40,000 in year 1, $60,000 inyear 2, $80,000 in year 3, and $100,000 in year 4. You estimate CU's current interest rate is 8%. One year later, the yielddeclines to 7%, and you decide to sell your bond. What is your holding period return?OA. 4.3%OB. 8.5%OC. 10.8%OD.6.6%

C. 10.8% 1. Calculating the Purchase Price of the BondUse the present value (PV) formula for each…

Answered: As a bond fund manager, you are…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

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The University Club recently issued 1,500,000 of 10-year, 9% bonds at an effective interest rate of 10%. Bond interest is payable annually. You have been asked to calculate the issuance price of the bonds and prepare amortization schedules for any discount or premium. The worksheet BONDS has been provided to assist you. Note that the worksheet contains a scratch pad at the bottom that has been preprogrammed to automatically compute and display the relevant cash flows needed for bond pricing.
Suppose that you initially invested 10,000 in the Stivers mutual fund and 5,000 in the Trippi mutual fund. The value of each investment at the end of each subsequent year is provided in the table: Which of the two mutual funds performed better over this time period?
Krystian Inc. issued 10-year bonds with a face value of $100,000 and a stated rate of 4% when the market rate was 6%. Interest was paid semi-annually. Calculate and explain the timing of the cash flows the purchaser of the bonds (the investor) will receive throughout the bond term. Would an investor be willing to pay more or less than face value for this bond?
As a bond fund manager, you are considering 10-year corporate bonds issued by Mellon Bank (MB). Each MB bond has a $1,000 par value with 8% annual coupon rate. The coupons are paid semi-annually. The estimated rate of return on MB bond is 10%. What is the price of the bond? • A. $831.31 • B. $1,010.29 • C. $875.38 • D. $946.32 You purchase a 5-year corporate bond. The coupon rate of the bond is 6%, paid annually, and its par value is $1,000. The YTM is 4%. If you sell the bond one year later, what is your holding period return? • A. 3.5% • B. 0.5% • C. 1.7% • D. 4.0%
As a bond fund manager, you are considering 10-year corporate bonds issued by Mellon Bank (MB). Each MB bond has a $1,000 par value with 8% annual coupon rate. The coupons are paid semi-annually. The estimated rate of return on MB bond is 10%. One year later, the yield increases to 11%. What is your holding period return of the bond? A. 8.20% B. 4.11% C. -6.79% D. -3.35%
Based on the information above: ii. Chris Johnson fund managers has proposed him to invest on JigsawBerhad where the firm is setting the terms on a new issue of bonds withwarrants. The bonds will have a 30-year maturity and annual interestpayments. Each bond will come with 20 warrants that give the holder theright to purchase one share of share per warrant. The fund managerestimate that the value of each warrant will be RM10.50. The interest rateis 10 percent. Calculate the coupon rate should be set on the bonds-withwarrants so that the package would sell for RM1,000.
Clifford Clark is a recent retiree who is interested in investing some of his savings in corporate bonds. His financial planner has suggested the following bonds: Bond A has an 8% annual coupon, matures in 12 years, and has a $1,000 face value. Bond B has an 11% annual coupon, matures in 12 years, and has a $1,000 face value. Bond C has a 14% annual coupon, matures in 12 years, and has a $1,000 face value. Each bond has a yield to maturity of 11%. The data has been collected in the Microsoft Excel file below. Download the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations. Use a minus sign to enter negative values, if any. If an answer is zero, enter "0". A) Before calculating the prices of the bonds, indicate whether each bond is trading at a premium, at a discount, or at par. Bond A is selling at because its coupon rate is the going interest rate. Bond B is selling at because its coupon rate is…
A mutual fund plans to purchase $500,000 of 30-year Treasury bonds in four months. These bonds have a duration of 12 years and are priced at 96-08 (32nds). The mutual fund is concerned about interest rates changing over the next four months and is considering a hedge with T-bond futures contracts that mature in six months. The T-bond futures contracts are selling for 98-24 (32nds) and have a duration of 8.5 years. If interest rate changes in the spot market exactly match those in the futures market, what type of futures position should the mutual fund create? How many contracts should be used? If the implied rate on the deliverable bond in the futures market moves 12 percent more than the change in the discounted spot rate, how many futures contracts should be used to hedge the portfolio? What causes futures contracts to have a different price sensitivity than the assets in the spot markets?
Clifford Clark is a recent retiree who is interested in investing some of his savings in corporate bonds. His financial planner has suggested the following bonds: Bond A has a 9% annual coupon, matures in 12 years, and has a $1,000 face value. Bond B has a 10% annual coupon, matures in 12 years, and has a $1,000 face value. Bond C has an 8% annual coupon, matures in 12 years, and has a $1,000 face value. Each bond has a yield to maturity of 9%.
Clifford Clark is a recent retiree who is interested in investing some ofhis savings in corporate bonds. His financial planner has suggested the following bonds:● Bond A has a 7% annual coupon, matures in 12 years, and has a $1,000 face value.● Bond B has a 9% annual coupon, matures in 12 years, and has a $1,000 face value.● Bond C has an 11% annual coupon, matures in 12 years, and has a $1,000 face value.Each bond has a yield to maturity of 9%.a. Before calculating the prices of the bonds, indicate whether each bond is trading at apremium, at a discount, or at par.b. Calculate the price of each of the three bonds.c. Calculate the current yield for each of the three bonds. (Hint: Refer to footnote 6 forthe definition of the current yield and to Table 7.1.)d. If the yield to maturity for each bond remains at 9%, what will be the price of eachbond 1 year from now? What is the expected capital gains yield for each bond? Whatis the expected total return for each bond?e. Mr. Clark is…
a company issued 20-yr bonds which pay semi-annual coupons of $60 and is currently selling at $1,000. The firm has decided to raise new funds using bond financing with maturity of 10 years, par value of $1,000 and semi-annual coupons of $80. How many new bonds must XYZ Inc. issue to raise a sum of $10,000,000 in case if we assume that both bonds have the same interest rate. Rounded to the nearest whole number.
You are given the following information concerning a noncallable, sinking fund debenture: Principal: $1,000 Coupon rate of interest: 7 percent Term to maturity: 12 years Sinking fund: 3 percent of outstanding bonds retired annually; the balance at maturity If you buy the bond today at its face amount and interest rates rise to 12 percent after five years have passed, what is your capital gain or loss? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Use a minus sign to enter the loss amount, if any, as a negative value. Round your answer to the nearest dollar. $ If you hold the bond 12 years, what do you receive at maturity? -Principal or All coupon payments? What is the bond's current yield as of right now? Round your answer to the nearest whole number. % Given your price in a, what is the yield at maturity? Round your answer to the nearest whole number. % What proportion of the total debt issue is retired by the…

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