. The "price value of a basis point" (PVBP) measures the change in the price of a bond if the yieldchanges by one basis point (one one-hundredth of a percent-0.01%). PVBP is expressed as theabsolute value of the change in price. Consider a coupon bond with a face value of $100,000, anannual coupon rate of 10% and that matures in 5 years. What is PVBP if the yield rises from 10%to 10.01%?(Round to the nearest cent.)The PVBP if the yield rises from 10% to 10.01% is $A newly issued U.Ss. Federal T-Note matures in exactly 5 years. The coupon rate is 3% per yearand coupons are paid semiannually. The bond is priced at 104.79 (per $100 of face value) andyields 1.99%. The economy is slowing and many forecasters predict a recession. You expect thatthe monetary authorities will relax monetary policy which will cause interest rates to fall. You expectthe yield on the 5-year bond to fall to 0.24%. The bond has a face value of $1M. If you want toearn $1M by investing in bonds to profit from the interest rate change, how many bonds do youbuy?In order to earn $1M by investing in bonds, you need to buythe nearest whole number.)bonds. (Round up to

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- The "price value of a basis point" (PVBP) measure changes by one basis point (one one-hundredth of a percent-0.01%). PVBP is expressed as the absolute value of the change in price. Consider a coupon bond with a face value of $100,000, an annual coupon rate of 10% and that matures in 5 years. What is PVBP if the yield rises from 10% to 10.01%? The PVBP if the yield rises from 10% to 10.01% is $ (Round to the nearest cent.)

- The "price value of a basis point" (PVBP) measure changes by one basis point (one one-hundredth of a percent-0.01%). PVBP is expressed as the absolute value of the change in price. Consider a coupon bond with a face value of $100,000, an annual coupon rate of 10% and that matures in 5 years. What is PVBP if the yield rises from 10% to 10.01%? The PVBP if the yield rises from 10% to 10.01% is $ (Round to the nearest cent.)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 5MC: What would be the value of the bond described in Part d if, just after it had been issued, the...

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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.)
Yield to Maturity and Yield to Call Arnot International’s bonds have a current market price of $1,200. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price = $1,090). What is the yield to maturity? What is the yield to call if they are called in 5 years? Which yield might investors expect to earn on these bonds, and why? The bond’s indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?
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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%.
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: