Disney issued a $10,000 Par, 4% Coupon bond that will mature in 20 years. Disney pays the annual interest payment in 2 equal parts, 6 months apart. So, every 6 months the owner gets 1/2 the ANNUAL income. Instead of getting one big check a year you'll get two smaller ones. If you buy the above bond today when its yielding 4.5% and you sell the bond 5 years from now, when the bond is yielding 4.0% what is your profit or loss in $$s? All cash flows occur at the end of the period.

Disney issued a $10,000 Par, 4% Coupon bond that will mature in 20 years. Disney pays the annual interest payment in 2 equal parts, 6 months apart. So, every 6 months the owner gets 1/2 the ANNUAL income. Instead of getting one big check a year you'll get two smaller ones. If you buy the above bond today when its yielding 4.5% and you sell the bond 5 years from now, when the bond is yielding 4.0% what is your profit or loss in $$s? All cash flows occur at the end of the period.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 17P

See similar textbooks

Similar questions

cullumber, inc has a bond issue maturing in seven years that is paying a coupon rate of 9.0 percent (semiannual payments). Management wants to retire a portion of the issue by buying the securities in the open market. if it can refinance at 7.5 percent, how much will cullumber pay to buy back its current outstanding bonds?
Your company has an obligation to pay $100,000,000 to a partner in 5 years. You decide to invest in an immunized bond portfolio to assure that you will have at least that much in five years. There are two bonds available to you. The first bond has a 5-year maturity and pays 10% coupon once a year and has $1,000 par value. The second bond will mature in 10 years, also pays 10% coupon once each year and has $1,000 a. Design the immunization strategy to satisfy your need. Show exactly how much you will invest and in which bond (or bonds). b. Show what will happen to the terminal value of your investment if immediately after you form your immunized portfolio interest rate jumps to 11% and remains at that rate for 5 years? c. Show what will happen to the terminal value of your investment if immediately after you form your immunized portfolio interest rate declines to 9% and remains at that rate for 5 years? Give typing answer with explanation and conclusion
Silver Run Inc. has 6% coupon bonds outstanding that pay interest semiannually and have 15 years remaining until maturity. They carry a face value of $1000. These bonds are currently selling for $1143. What price should these bonds sell for two years from now if their yield drops by 100 basis points over the two years?
Princetown Corp issues 6% coupon bonds for par value today. These bonds make semi-annual coupon payments and mature in 12 years. You buy one of these bonds for exactly $1,000. You hold the bond for 6 months, collect the coupon payment, and then sell the bond immediately therafter. If the bond's yield-to-maturity is 9.2% when you sell it, what is your percentage return (not annualized) over this 6-month holding period? Enter your answer as a decimal and show 4 decimal places.
Grandpa Russ thinks he needs a fixed income for the next 10 years. He currently has $10,000 in CDs, which are maturing at the end of this month. The CDs can be renewed for one year at 4 1/2 percent. Russ calls his broker, Ben Seller, and learns that his $10,000 can be put to better use by purchas-ing debentures issued by Grab-n-Run, Inc. These bonds are 10-year bonds with a coupon rate of 8 percent, which is paid semiannually. The current market interest rate is 6 percent for bonds of a similar nature. The broker tells Grandpa Russ that he may buy each bond for $1,400. Grandpa knows that he must pay a premium, but he believes that a $400 premium is too high. What is the maximum price you should tell Grandpa to pay for each bond? Compare the risk of the CD with the risk of the bond. What else would you advise Grandpa with regard to this type of investment?
You have just purchased 10 municipal bonds, each with a $1,000 par value, for $9,500. You purchased them immediately after the previous owner received semiannual coupon payments. The bond rate is 6.6% per year pay able semiannually. You plan to hold the bonds for 5 years, selling them immediately after you receive the coupon payment. If your desired nominal yield is 12% per year compounded semiannually, what will be your minimum selling price for the bonds?
Seven years ago, a semi-annual coupon bond with a 10% coupon rate, $1,000 face value and 15 years to maturity was issued by Corn Inc. Teddy bought this bond two years ago when the market interest rate was 12%. And now the market interest rate is 5%. If teddy sells the bond now, what is Teddy’s capital gain/loss yield on the bond investment? Find the initial purchase price and selling price, then determine the yield.