b. John needs to pay $55,000, $60,000 and $65,000 at the end of next 3 years respectively. The market interest rate is 4% per annum. i. What will be the duration of John’s payment obligation? ii. Suppose John plans to fully fund the obligation using both 6-month zero coupon bonds and perpetuities. Determine how much (in market value) of each of these bonds John will hold in the portfolio.
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b. John needs to pay $55,000, $60,000 and $65,000 at the end of next 3 years respectively. The market interest rate is 4% per annum.
i. What will be the duration of John’s payment obligation?
ii. Suppose John plans to fully fund the obligation using both 6-month zero coupon bonds and perpetuities. Determine how much (in market value) of each of these bonds John will hold in the portfolio.
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- Assume you will be paying $10,000 per year in tuition expenses at the end of each of the next two years. Bonds currently yield 8%. a) What is the present value and duration of your obligation? b) What maturity zero-coupon bond would immunize your obligation? c) Suppose you buy a zero-coupon bond with value and duration equal to that of your obligation. Now suppose that interest rates immediately increase to 9%. What happens to your net position, that is, to the difference between the value of the bond and that of your tuition obligation? d) What happens to your net position if rates instead fall to 7%?A man wants to make 14% nominal interest compounded semi - annually on a bond investment. How much should the man be willing to pay bow for a 12%, P10, 000 bonds that will mature in 10 years and pays interest semi - annually?On January 1, 2021, Austin plans to pay $1,050 for a $1,000, 12% semiannual bond. He will keep the bond for three years, receive six coupon payments, and then sell it. How much should he sell the bond for in order to receive a yield of 10% compounded semiannually?
- You will be paying $10,000 a year in tuition expenses at the end of the next two years. Bonds currently yield 8%.a. What is the present value and duration of your obligation?b. What maturity zero-coupon bond would immunize your obligation? c. Suppose you buy a zero-coupon bond with value and duration equal to your obligation. Now suppose that rates immediately increase to 9%. What happens to your net position, that is, to the difference between the value of the bond and that of your tuition obligation?d. What if rates fall immediately to 7%?You will receive $60 interest every six months from your investment in a corporate bond. The bond will mature in five years from now and it has a face value of $2,000. This means that if you hold the bond until its maturity, you will continue to receive $150 interest semiannually and $2,000 face value at the end of five years.(a) What is the present value of the bond in the absence of inflation if the market interest rate is 9% '?(b) What would happen to the value of the bond if the inflation rate over thenext five years is expected to be 4%?Bob uses 19481 to purchase a 10-year par-value bond (i.e. redeems at face-value). Coupons are paid out annually (end of the year) and each coupon is equal to 2% of the face-value of the bond. If each coupon payment is invested into an account that earns an effective annual interest rate of 2.4%, then what is the face-value of the bond if Bob realizes an overall yield of 3.36% per year effective over the 10 year period? Give your answer rounded to the nearest whole number (i.e. X).
- The ARA Corporation bonds have a coupon of 14%, pay interest semi-annually, and they will mature in 7 years. Your required rate of return for such an investment is 10% annually. 1. How much should you pay for a $1,000 ARA Corporation bond? 2. If you are given RM90,000, how many units of bond can you purchase? 3. What is the yearly interest income for this bond if I purchase it with RM90,000? 4. You plan to reinvest the coupon interest at 12% rate of return per annum. Calculate the value of the reinvestment, what is the figure will you get at the end of 7th years with your principle.The ARA Corporation bonds have a coupon of 14%, pay interest semi-annually,and they will mature in 7 years. Your required rate of return for such an investmentis 10% annually.i) How much should you pay for a $1,000 ARA Corporation bond?ii) If you are given RM90,000, how many units of bond can you purchase?iii) What is the yearly interest income for this bond if I purchase it with RM90,000?iv) You plan to reinvest the coupon interest at 12% rate of return per annum. Calculate the value of the reinvestment, what is the figure will you get at the end of 7th years with your principle 2) Find the duration of the bond with the given information.Face value = RM1000Maturity = 6 yearsCoupon = 5%Bond value = RM1020 3) Recent dividend distributed RM1. Suppose a firm is expected to increase dividends by 20% in one year and by 15% in two years. After that, dividends will increase at a rate of 5% per year indefinitely. If the required return is 20%, calculate the stock. 4) Capital Bhd. just paid a…Consider a six-year, 10% coupon bond (yearly coupon payments) with a face value of $1000 that John bought for $950. (a). What is the yield to maturity of this bond? (b). Suppose after holding it for one year, (and receiving one coupon payment), John sells it for $1050. What is the return John got from holding this bond for one year?