pose that Bernie Sanders has an investment horizon of 3 years. He wants to buy a 7yr 9% coupon bond, semiannual pay, yielding 10% rate of return. Face value is 1000. Bernie thinks he can reinvest the coupon payments at an annual interest rate of 10.2%. Bernie is planning to sell the bond at the end of year 3 when the bond will

pose that Bernie Sanders has an investment horizon of 3 years. He wants to buy a 7yr 9% coupon bond, semiannual pay, yielding 10% rate of return. Face value is 1000. Bernie thinks he can reinvest the coupon payments at an annual interest rate of 10.2%. Bernie is planning to sell the bond at the end of year 3 when the bond will

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 4P

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Similar questions

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?
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?
What is the maximum price you will pay for a bond with a face value of $1,000 and a coupon rate of 14%, paid annually, if you want a yield to maturity of 10%? Assume that the bond will mature in 10 years and the first payment will be received in one year.
Diane Carter is interested in buying a five-year zero coupon bond with a face value of $1,000. She understands that the market interest rate for similar investments is 9 percent. Assume annual coupon payments. What is the current value of this bond?
You buy a zero-coupon bond with a face value of $16,000 that matures in 10 years for $7,000. What is your annual compound rate of return?
You are managing a portfolio of £20 million. Your target duration is 6 years, and you can choose from two bonds: a zero-coupon bond with 3 years of maturity and a perpetuity, each currently yielding 5%. Next year, the target duration is 5 years. What is the portfolio weight invested in the perpetuity?
Suppose you have an investment horizon of 10 years and bought a 20-year maturity, 8% coupon bond at par ($1,000) that pays coupons semiannually and is callable at a call price of $1,050. Assume the yield remains constant at 8% for three years after you buy the bond. At the end of year 3, suppose the yield drops to 5% and the issuer calls the bond. Assume you reinvest your funds in a new seven-year bond paying 5% coupons which are paid semiannually, and the yield remains at 5% for seven years. What is your total return until the call date?
Consider the following annual coupon bond with a face value of $1,000, a price of $986.24, a coupon rate of 5.9% and a maturity of 30 years. Right after you purchase the bond, market interest rates change to 12% and remain constant for the next ten years. What would be your realized yield to maturity if you sold the bond after 10 years?
Suppose your company needs to raise $28 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 8 percent, and you're evaluating two issue alternatives: an 8 percent annual coupon and a zero coupon bond. Your company's tax rate is 25 percent. In 20 years, what will your company's repayment be if you issue the coupon bonds? What if you issue the zeros? (Assume annual compounding on the zero coupon bond.)
A zero coupon bond will be worth $15,000 when it matures and redeemed after 10 years. How much would an investor be willing to pay now for this bond if a 3 percentage per year yield is desired?
You are considering the purchase of a new issue of bonds which will mature in 10 years. The coupon rate on this bond is 8% annually, with interest being paid every 6 months. If your portfolio has an average annual return of 6 % what is the most you would pay for this bond?
Ruth Hornsby is looking to invest in a three-year bond that makes semiannual coupon payments ata rate of 5.875 percent. If these bonds have a market price of $981.13, what is the yield to maturity and effective annual yield can she expect to earn?