HW#3

Consider a coupon bond that has a $1,000 par value and a coupon rate of 10%. The bond is currently selling for $1,150 and has 8 years to maturity. What is the bond’s yield to maturity?

A 10-year, 7% coupon bond with a face value of $1,000 is currently selling for $871.65. Compute your rate of return if you sell the bond next year for $880.10.

Consider the decision to purchase either a 5-year corporate bond or a 5-year municipal bond. The corporate bond is a 12% annual coupon bond with a par value of $1,000. It is currently yielding 5%. The municipal bond has an 8.5% annual coupon and a par value of $1,000. It is currently yielding 7%. Which of the two bonds would be more beneficial to you? Assume that your marginal tax rate is 35%.

Calculate the duration of a $1,000 6% coupon bond with three years to maturity. Assume that all market interest rates are 7%.

Consider the bond in the previous question. Calculate the expected price change if interest rates drop to 6.75% using the duration approximation. Calculate the actual price change using discounted cash

Assume you just deposited $1,000 into a bank account. The current real interest rate is 2% and inflation is expected to be 6% over the next year. What nominal interest rate would you require from the bank over the next year? How much money will you have at the end of one year? If you are saving to buy a stereo that currently sells for $1,050, will you have enough to buy it?

Suppose that Expectation theory In the market,

price of 1-year zero coupon is 970

price of 2-year zero coupon is 930

price of 3-year zero coupon is 900

Question 1. What is a price of 1-year zero coupon to be issued a year from now (at t=1)?

Question 2. What is a price of 1-year zero coupon to be issued two years from now (at t=2)?

Question 3. What is a price of 2-year zero coupon to be issued a year from now (at t=1)?

Question 4. What is a price of 3-year 5% annual coupon bond today?

Question

HW#3

Consider a coupon bond that has a $1,000 par value and a coupon rate of 10%. The bond is currently selling for $1,150 and has 8 years to maturity. What is the bond’s yield to maturity?
A 10-year, 7% coupon bond with a face value of $1,000 is currently selling for $871.65. Compute your rate of return if you sell the bond next year for $880.10.
Consider the decision to purchase either a 5-year corporate bond or a 5-year municipal bond. The corporate bond is a 12% annual coupon bond with a par value of $1,000. It is currently yielding 5%. The municipal bond has an 8.5% annual coupon and a par value of $1,000. It is currently yielding 7%. Which of the two bonds would be more beneficial to you? Assume that your marginal tax rate is 35%.
Calculate the duration of a $1,000 6% coupon bond with three years to maturity. Assume that all market interest rates are 7%.
Consider the bond in the previous question. Calculate the expected price change if interest rates drop to 6.75% using the duration approximation. Calculate the actual price change using discounted cash
Assume you just deposited $1,000 into a bank account. The current real interest rate is 2% and inflation is expected to be 6% over the next year. What nominal interest rate would you require from the bank over the next year? How much money will you have at the end of one year? If you are saving to buy a stereo that currently sells for $1,050, will you have enough to buy it?
Suppose that Expectation theory In the market,
1. price of 1-year zero coupon is 970
2. price of 2-year zero coupon is 930
3. price of 3-year zero coupon is 900

Question 1. What is a price of 1-year zero coupon to be issued a year from now (at t=1)?

Question 2. What is a price of 1-year zero coupon to be issued two years from now (at t=2)?

Question 3. What is a price of 2-year zero coupon to be issued a year from now (at t=1)?

Question 4. What is a price of 3-year 5% annual coupon bond today?

Accepted Answer

Note : As per the guidelines of Bartleby , only 2 questions can be answered
 
1. Calculating a…