Consider a junk bond with a 12 percent coupon and 20 years to maturity. The current required rate of return for this bond is 15 percent. What is its price? What would its price be if the required yield rose to 17 percent? 20 percent?
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Consider a junk bond with a 12 percent coupon and 20 years to maturity. The current required
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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.)Consider a bond selling at par of $1,000 with a coupon rate of 5% semi-annualcoupon payment, and 10 years to maturity.(a) What is the price of this bond if the required yield is 15%?(b) What is the price of this bond if the required yield increases from 15% to 16%,and by what percentage did the price of this bond change?(c) What is the price of this bond if the required yield is 5%?(d) What is the price of this bond if the required yield increases from 5% to 6%, andby what percentage did the price of this bond change?(e) From your answers of parts (b) & (d), what can you say about the relative pricevolatility of a bond in a high-interest-rate environment compared to alow-interest-rate environment?Assume a 10-year, $1,000 par value bond with a 10 percent annual coupon if its required rate of return is 10 percent what is the value of the bond? What would be the value of the bond described in part b if, just after it had been issued, the expected inflation rate rose by 3 percentage points? Would we now have a discount or a premium bond? What would happen to the bonds' value if inflation fell, by 3 %? Would we now have a premium or a discount bond?
- Is the yield to maturity on a bond the same thing as the required return? Is YTM the same thing as the coupon rate? Suppose today a 10 percent coupon bond sells at par. Two years from now, the required return on the same bond is 8 percent. What is the coupon rate on the bond? What is the YTM on the bond?s the yield to maturity on a bond the same thing as the required return? Is YTM the same thing as the coupon rate? Suppose today a 10 percent coupon bond sells at par. Two years from now, the required return on the same bond is 8 percent. What is the YTM on the bond?Consider a bond with face value of $1000, a coupon rate of 8% (paid annually), and ten years to maturity. What is required of you: a. What is the price of this bond if the required rate of return (r) is 18 percent? b. What is the price if r increases to 20 percent? By what percentage did the price of the bond change? c. What is the price if r is five percent? If r increases to seven percent, what is the percentage change in price? d. From your answers in a to c, what can you say about relative price volatility of a bond in high compared to low interest rate environments.
- Consider a bond with face value of $1000, a coupon rate of 8% (paid annually), and ten years to maturity. What is required of you: a. What is the price of this bond if the required rate of return (r) is 18 percent? b. What is the price if r increases to 20 percent? By what percentage did the price of the bond change? c. What is the price if r is five percent? If r increases to seven percent, what is the percentage change in price? d. From your answers in a to c, what can you say about relative price volatility of a bond in high compared to low interest rate environments. Please solve all the sub parts otherwise skip.Suppose you bought a five-year zero-coupon Treasury bond for $800 per $1000 face value. What is the yield to maturity (annual compounding) on the bond?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?
- What should the current market price be for a bond with a $1,000 face value, a 10% coupon rate paid annually, a required rate of return of 8%, and 20 years until maturity? What generalizations about bond prices can you make given your answers to #1 and #2? A bond has a market price of $1,000, a $1,000 face value, a 10% coupon rate paid annually, a required rate of return of 10%, and 30 years until maturity. If the required rate of return immediately increased to 13%, what is the new market price of the bond? A bond has a market price of $1,000, a $1,000 face value, a 10% coupon rate paid annually, a required rate of return of 10%, and 10 years until maturity. If the required rate of return immediately increased to 13%, what is the new market price of the bond? What generalizations about bond prices can you make given your answers to #4 and #5? The CFO of Brady Corp. announces that the firm plans to grow its annual dividend at a rate of 3% forever. The company just paid its annual…A bond that matures in 11 years has a $1,000 par value. The annual coupon interest rate is 8 percent and the market’s required yield to maturity on a comparable-risk bond is 15 percent. What would be the value of this bond if it paid interest annually? What would be the value of this bond if it paid interest semiannually? A. The value of this bond if it paid interest annually would be Round to the nearest centA risk-free, zero-coupon bond with a face value of $10,000 has 14 years to maturity. If the YTM is 7.1%, which of the following would be closest to the price this bond will trade at?