Nikul Suppose that you are considering investing in a 4-year bond that has a face value of $1,000 and a coupon rate of5.3%.a.) If the market interest rate on similar bonds is 5.3%, the price of the bond is $ 1000. (Round your response to thenearest cent.)The bond's current yield is 5.3 %. (Round your response to two decimal places.)b.) Suppose that you purchase the bond, and the next day the market interest rate on similar bonds falls to 4.3%.The price of the bond will be $(Round your response to the nearest cent.)

Bonds are the source of funds raised by a business entity by issuing securities to investors. It…

Answered: Suppose that you are considering…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 6%. You hold the bond for five years before selling it. a. If the bond's yield to maturity is 6% when you sell it, what is the internal rate of return of your investment? b. If the bond's yield to maturity is 7% when you sell it, what is the internal rate of return of your investment? c. If the bond's yield to maturity is 5% when you sell it, what is the internal rate of return of your investment? d. Even if a bond has no chance of default, is your investment risk free if you plan to sell it before it matures? Explain. Note: Assume annual compounding.
1. Suppose you purchase bond that has a coupon of $75, face value of S1,000, and current price of $1,100. What is your coupon rate? What is your current Save Answer yield? 2. Suppose you purchase a bond with a coupon of $50 for $1,010. You sell it one year later for $900. What rate of return did you carn?
Suppose you purchase a 10-year bond with 6.19% annual coupons. You hold the bond for 4 years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 5.34% when you purchased and sold the bond, a. what cash flows will you pay and receive from your investment in the bond per $100 face value? b. what is the annual rate of return of your investment? a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flows from the investment are shown in the following timeline: (Round to the best choice below.) A. Years 2 3 Cash Flows $106.46 $6.19 $6.19 $6.19 $110.46 B. Years 0 2 3 4 Cash Flows - $106.46 $6.19 $6.19 $6.19 $110.46 C. Years 0 1 2 3 4 Cash Flows $104.27 $6.19 $6.19 $6.19 $110.46 D. Years 0 2 3 4 + $6.19 $6.19 $6.19 $104.27 Cash Flows - $110.46 b. What is the annual rate of return of your investment? The annual rate of return of your investment is %. (Round to two decimal places.)
suppose you purchase a 30-year Treasury bond with a 5% annual coupon, initially trading at par. In 10 years' time, the bond's yield to maturity has risen to 6% (EAR). (Assume $100 face value bond.) a. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond? b. If instead you hold the bond to maturity, what internal rate of return will you earn on your initial investment in the bond? c. Is comparing the IRRs in (a) versus (b) a useful way to evaluate the decision to sell the bond? Explain. 1. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond? The IRR of the bond is nothing%. (Round to two decimal places.)
Suppose that you are considering investing in a 4-year bond that has a face value of $1,000 and a coupon rate of 5%. a.) If the market interest rate on similar bonds is 5%, the price of the bond is $nothing. (Round your response to the nearest cent.) The bond's current yield is nothing%. (Round your response to two decimal places.) b.) Suppose that you purchase the bond, and the next day the market interest rate on similar bonds falls to 4%. The price of the bond will be $nothing. (Round your response to the nearest cent.) The current yield will be nothing%. (Round your response to two decimal places.) c.) Now suppose that 1 year has gone by since you bought the bond, and you have received the first coupon payment. The market interest rate on similar bonds is still 4%. At an interest rate of 4%, the price an investor is willing to pay for the bond is $nothing. (Round your response to the nearest cent.) Your rate of return on the bond was nothing%.…
Suppose you purchase a 10-year bond with 6.19% annual coupons. You hold the bond for 4 years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 5.34% when you purchased and sold the bond, a. what cash flows will you pay and receive from your investment in the bond per $100 face value? b. what is the annual rate of return of your investment? a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flows from the investment are shown in the following timeline: (Round to the best choice below.) A. Years 0 2 3 4 Cash Flows $106.46 $6.19 $6.19 $6.19 $110.46 B. Years 0 2 3 4 Cash Flows - $106.46 $6.19 $6.19 $6.19 $110.46 ○ C. Years 0 2 3 4 Cash Flows $104.27 $6.19 $6.19 $6.19 $110.46 D. Years 0 2 3 4 Cash Flows - $110.46 $6.19 $6.19 $6.19 $104.27 b. What is the annual rate of return of your investment? The annual rate of return of your investment is %. (Round to two decimal places.)
Suppose you purchase a 30-year Treasury bond with a 5% annual coupon, initially trading at par. In 10 years' time, the bond's yield to maturity has risen to 7% (EAR). (Assume $100 face value bond.) a. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond? b. If instead you hold the bond to maturity, what internal rate of return will you earn on your initial investment in the bond? c. Is comparing the IRRs in (a) versus (b) a useful way to evaluate the decision to sell the bond? Explain. a. If you sell the bond now, what internal rate of return will you have earned on your investment in the bond? The IRR of the bond is %. (Round to two decimal places.)
Suppose that you buy a TIPS (inflation-indexed) bond with a 1-year maturity and a coupon of 2% paid annually. Assume you buy the bond at its face value of $1,000, and the inflation rate is 10%. a. What will be your cash flow at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What will be your real return? c. What will be your nominal return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Consider a bond with a face value of $2,000 that pays a coupon of $150 for 10 years. Suppose the bond is purchased at $500, and can be resold next year for $400. What is the rate of return of the bond? What is the yield to maturity of the bond?
Suppose you purchase a 10-year bond with 6.64% annual coupons. You hold the bond for 4 years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 5.17% when you purchased and sold the bond, a. what cash flows will you pay and receive from your investment in the bond per $100 face value? b. what is the annual rate of return of your investment? a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flows from the investment are shown in the following timeline: (Round to the best choice below.) OA. Years Cash Flows O B. Years C. Years Cash Flows Cash Flows - $114.06 O D. Years 0 Cash Flows $107.42 0 0 - $111.26 0 $111.26 1 $6.64 1 $6.64 1 $6.64 1 $6.64 2 $6.64 2 + $6.64 2 + $6.64 2 + $6.64 3 $6.64 3 $6.64 3 $6.64 3 $6.64 b. What is the annual rate of return of your investment? The annual rate of return of your investment is %. (Round to two decimal places.) 4 $114.06 4 $107.42 4 $114.06 4…
You just bought a newly issued bond which has a face value of $1,000 and pays its coupon once annually. Its coupon rate is 6%, maturity is 20 years and the yield to maturity for the bond is currently 8%. a. Do you expect the bond price to change in the future when the yield stays at 8%? Why or why not? Explain. (No calculation is necessary to answer this part of the question.) b. Calculate what the bond price would be in one year if its yield to maturity stays at 8%. c. Find the before-tax holding-period return for a one-year investment period if the bond sells at a yield to maturity of 7% by the end of the year (year 1). d. Suppose that the ordinary income tax rate is 40% and the capital gains tax rate is 30%. When the ordinary income tax rate is higher than the capital gains tax rate, tax authorities typically tax anticipated price appreciations from bonds at the higher ordinary income rate in order to prevent tax aversion with discount bonds. Suppose that from the total dollar…
Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $90.44, while a 2-year zero sells at $82.64. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 12% per year. Required: a. What is the yield to maturity of the 2-year zero? b. What is the yield to maturity of the 2-year coupon bond? c. What is the forward rate for the second year? d. If the expectations hypothesis is accepted, what are (1) the expected price of the coupon bond at the end of the first year and (2) the expected holding-period return on the coupon bond over the first year? e. Will the expected rate of return be higher or lower if you accept the liquidity preference hypothesis? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E Will the expected rate of return be higher or lower if you accept the liquidity preference hypothesis?…

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS