calculate the price of a bond, where F is the face value, c is the coupon rate, N is the number of years to maturity, and i is the interest rate. F=$10,000, c=7%, N- is infinity (bond never matures), i=6%
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Give typing answer with explanation and conclusion
calculate the price of a bond, where F is the face value, c is the coupon rate, N is the number of years to maturity, and i is the interest rate. F=$10,000, c=7%, N- is infinity (bond never matures), i=6%
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- Suppose there is a large probability that L will default on its debt. For the purpose of this example, assume that the value of Ls operations is 4 million (the value of its debt plus equity). Assume also that its debt consists of 1-year, zero coupon bonds with a face value of 2 million. Finally, assume that Ls volatility, , is 0.60 and that the risk-free rate rRF is 6%.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?Describe and differentiate between a bonds (a) current yield and (b) yield to maturity. Why are these yield measures important to the bond investor? Find the yield to maturity of a 20-year, 9 percent, 1,000 par value bond trading at a price of 850. Whats the current yield on this bond?
- 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.)Bond Yields and Rates of Return A 10-year, 12% semiannual coupon bond with a par value of 1,000 may be called in 4 years at a call price of 1,060. The bond sells for 1,100. (Assume that the bond has just been issued.) a. What is the bonds yield to maturity? b. What is the bonds current yield? c. What is the bonds capital gain or loss yield? d. What is the bonds yield to call?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 are the cash flows you receive from a $1,000 coupon bond with a 6% coupon rate and: a) semiannual coupon payments; b) annual coupon payments; Calculate the price of the bond if its yield to maturity is 3%. Calculate the price of the bond if its yield to maturity increases to 5%. Compare your answers and explain why the prices are different. Is the bond trade at discount, par, or premium in each case?If you have a coupon bond, its face value is $1,000 and the coupon rate is 4%. Complete the following table, then calculate the rate of return for the bond. If you know that it was purchased at the nominal value, comment on the results. due date return at maturity the price 2 0.02 3 0.04 5 0.06 Present Value Annuity value % n value % n 0.961 0.02 2 1.97 0.02 2 0.925 0.04 2 1.89 0.04 2 0.889 0.04 3 2.78 0.04 3 0.906 0.02 5 4.71 0.02 5 0.747 0.06 5 4.21 0.06 5A newly issued bond with 1 year to maturity has a price of $1,000, which equals its face value. The coupon rate is 15% and the probability of default in 1 year is 35%. The bond’s payoff in default will be 65% of its face value. a. Calculate the bond’s expected return. b. Use a data table to show the expected return as a function of the recovery percentage and the price of the bond. Please show how you got part B using all functions.
- Assuming zero-coupon yields on default-free securities are as summarized in the following table:Maturity (years) 1 2 3 4 5Zero-coupon YTM 4.6% 5.0% 5.4% 5.8% 6.1% Consider a five-year, default-free bond with annual coupons of 5% and a face value of $1000. a. Without doing any calculations, determine whether this bond is trading at a premium or at a discount. Explain.b. What is the yield to maturity on this bond?c. If the yield to maturity on this bond increased to 5.2%, what would the new price be?Give typing answer with explanation and conclusion A bond offers a coupon rate of 5%, paid annually, and has a maturity of 6 years. The current market yield is 12%. Face value is $1,000. If market conditions remain unchanged, what should be the Capital Gains Yield of the bond?Calculate the duration for a $1000, 4-year bond with a 4.5% annual coupon, currently selling at par. Use the duration to estimate the percentage change in the bond’s price for a decrease in the market interest rate to 3.5%. Use the bond price volatility equation to compute the bond price volatility. Compare the result with the estimated percentage change in the bond price.
