Please answer required a,b Assume you have a 1-year investment horizon and are trying to choose among three bonds. All have the same degree of default riskand mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 10.0% coupon rate and paysthe $100 coupon once per year. The third has a 12.0% coupon rate and pays the $120 coupon once per year.a. If all three bonds are now priced to yield 8% to maturity, what are the prices of: () the zero-coupon bond; (i) the 10.0% coupon bond;(ii) the 12.0% coupon bond? (Round your answers to 2 decimal places.)Answer is not complete.Zero10%Coupon12%CouponCouponCurrentpricess 463.19 Os 1,134.20b. If you expect their yields to maturity to be 8% at the beginning of next year, what will be the price of each bond? (Round youranswers to 2 decimal places.)Zero Coupon 10% Coupon12% CouponPrice 1 year from now

Face value (F) = $1000 n = 10 years r = YTM = 8% Bond 1 coupon = 0 Bond 2 coupon (C1) = $100 Bond 3…

Answered: Assume you have a 1-year investment…

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 17P: Bond Value as Maturity Approaches An investor has two bonds in his portfolio. Each bond matures in 4...

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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.)
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:

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