When posted market rates are 9.65%, a $75,000 face value bond carrying a 7% coupon is purchased with 231/2 years to maturity. With eight years remaining until maturity the bond is then sold, when posted market rates are 3.5%. Calculate the investor's yield
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Q: yield to maturity
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A: Working note:
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Q: What is the current yield on the bond?
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A: Computations as follows: Hence, the bond price is $1000.00.
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- A bond with face value $1399 and a term of 11 years pays quarterly coupons of 11% per annum. The bond is offered at a price of $1050. You are to enter the above values into a spreadsheet, along with - an initial wild guess at what the yield would be, and - a calculation of the bond price using your guess as the yield. (a) Use Excel’s “Solver” (which is different from “Goal Seek”) to solve for the actual yield that produces the correct bond price. Take a screen shot of your computer with “Solver” open showing clearly the entries that you put into Solver. Paste the screen shot into an application (like Paint), and save it as a (.png) file. Upload your screenshot below. (b) What is the yield calculated by Solver?Suppose a bond with a 12% coupon rate and semiannual coupons, has a face value of $1,000, 10 years to maturity and is selling for $1,197.93. Calculate: A. Current yield, and B. YTM if the price of the bond in one year is $2,014.83 STEPS MAY INCLUDE USE OF FINANCIAL CALCULATOR (BA 2 PLUS)A newly issued bond with 1 year to maturity has a price of $1,000, which equals its face value. The coupon rate is 15% and the probability of default in 1 year is 35%. The bond’s payoff in default will be 65% of its face value. a. Calculate the bond’s expected return. b. Use a data table to show the expected return as a function of the recovery percentage and the price of the bond. Please show how you got part B using all functions.
- The following data are available for a bond Face value { 1,000 Coupon Rate 16% Years to Maturity 6. Redemption value { 1,000 Yield to maturity 17% What is the current market price, duration and volatility of this bond? Calculate the expected market price, if increase in required yield is by 75 basis points.Consider a coupon bond with the following features: coupon rate = 4.5%, face value = £10,000, time to maturity = 5 years, yield to maturity (YTM) = 6%. Assume that after 1 year (after having received the first coupon payment), the investor who has purchased the bond decides to sell it and that similar bonds in the market yield a YTM of 7%. Showing all your calculations, calculate the rate of return for having invested in this bond Is the interest rate on the bond considered a good approximation of its rate of return? Why/why not?If you have a coupon bond, its face value is $1,000 and the coupon rate is 4%. Complete the following table, then calculate the rate of return for the bond. If you know that it was purchased at the nominal value, comment on the results. due date return at maturity the price 2 0.02 3 0.04 5 0.06 Present Value Annuity value % n value % n 0.961 0.02 2 1.97 0.02 2 0.925 0.04 2 1.89 0.04 2 0.889 0.04 3 2.78 0.04 3 0.906 0.02 5 4.71 0.02 5 0.747 0.06 5 4.21 0.06 5
- Suppose that a bond with an 8% coupon rate and semiannual coupons has a face value of $1,000, 10 years to maturity. The required rate (Yield to Maturity, YTM) is 5%. Draw a timeline to identify the amount and timing of cash flows obtained with the bond and calculate the bond value. Redo part (a) if YTM is 10%. Next, use the results of parts (a) and (b) to show the relationship among YTM, coupon rate and bond value.A 30-year maturity bond making annual coupon payments with a coupon rate of 12% has (modified) duration of 11.54 years and convexity of 192.4. The bond currently sells at a yield to maturity of 8%. a) Find the price of the bond if ytm falls to 7% (use financial calculator or spreadsheet). b) What price would be predicted using duration only? c) What price would be predicted using duration and convexity? d) What is the error (in %) for each rule? What do you conclude about accuracy of the two rules? e) Repeat the analysis with yields rising to 9%. Do your conclusions about accuracy hold up?A risk-free 3-year annual coupon bond has a 5% coupon rate, a face value of $1,000, and trades for $950. The 1-year spot interest rate is 5%. The 2-year spot interest rate is 5.25%. The 3-year spot interest rate is 5.5%. What is your trading strategy? Please show your cash flows
- Consider a two-year coupon bond issued by an airline with Face Value of $1,000, Coupon Rate of 3%, Annual Default Probability of 5%, & Risk-Free Interest Rate of 3% per year. Use a binomial tree to value the bond assuming no recovery. Show your work & write your answer in dollars and cents below. The value (price, expected present value, etc.) of the bond is _______.Suppose a ten-year bond with a $10,000 face value pays a 5.0% annual coupon (at the end of the year), has 2 years left to maturity, and has a discount rate of 6.5%. Further suppose you purchase this bond, but then, after you purchase it, you discover that the credit (i.e. "default" risk) on the bond has increased. Ceteris paribus, it follows that the present value (i.e. the market price) would and the yield would Select one: O a. increase; decrease O b. increase; increase c. decrease; increase d. decrease; decreaseConsider an 8% coupon bond (with a face value of $1,000)currently selling for $953.10. The bond has three years until itsmaturity. The bond makes annual coupon payments. Theinterest rates in the next three years will be, with certainty, r1 =8%, r2 = 10%, and r3 = 12%.a. Calculate the bond’s yield to maturity b. Calculate the bond’s realized compound yield.please explain the answer in detail ( do not use Excel)