Assume today is 12/31/2022 and you observe this yield curve. Maturity Spot 1 3.75% 2 3.88% 3 3.95% 4 4.00% 5 4.13% 6 4.50% Replicate the 6-year bond with 2 3-year bonds. In other words, instead of buying the 6-year bond earning 4.5% interest, I want to buy one 3- year bond paying 3.95% interest and another 3-year bond. What would be the rate for that 3-year bond starting 3 years from now? You need to calculate the Forward rate F3x6 Please enter your answer in decimal format and up to 3 decimal places. For example, if your answer is 6.05%, enter .061

Assume today is 12/31/2022 and you observe this yield curve. Maturity Spot 1 3.75% 2 3.88% 3 3.95% 4 4.00% 5 4.13% 6 4.50% Replicate the 6-year bond with 2 3-year bonds. In other words, instead of buying the 6-year bond earning 4.5% interest, I want to buy one 3- year bond paying 3.95% interest and another 3-year bond. What would be the rate for that 3-year bond starting 3 years from now? You need to calculate the Forward rate F3x6 Please enter your answer in decimal format and up to 3 decimal places. For example, if your answer is 6.05%, enter .061

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 10P

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Similar questions

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?
Yield to Maturity and Yield to Call Arnot International’s bonds have a current market price of $1,200. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price = $1,090). What is the yield to maturity? What is the yield to call if they are called in 5 years? Which yield might investors expect to earn on these bonds, and why? The bond’s indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?
Bond Value as Maturity Approaches An investor has two bonds in his portfolio. Each bond matures in 4 years, has a face value of 1,000, and has a yield to maturity equal to 9.6%. One bond, Bond C, pays an annual coupon of 10%; the other bond, Bond Z, is a zero coupon bond. Assuming that the yield to maturity of each bond remains at 9.6% over the next 4 years, what will be the price of each of the bonds at the following time periods? Fill in the following table:
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.)
Current Yield with Semiannual Payments A bond that matures in 7 years sells for $1,020. The bond has a face value of $1,000 and a yield to maturity of 10.5883%. The bond pays coupons semiannually. What is the bond’s current yield?