You have two bonds in your portfolio, Bond Y and Bond Z. Bond Y matures in 10 years and Bond Z matures in 5 years. They both have the same coupon rates. If interest rates increase or decrease which bond would you expect to have the largest change in their market price?
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You have two bonds in your portfolio, Bond Y and Bond Z. Bond Y matures in 10 years and Bond Z matures in 5 years. They both have the same coupon rates. If interest rates increase or decrease which bond would you expect to have the largest change in their market price?
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- 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?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.)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:
- You have a risk-free bond with 2 years to maturity. The bond has a face value of $ 1000 and a coupon rate of 5%. The next coupon will be paid one year from now, and the bond pays annual coupons. a. What is the price of the bond? What is its own yield to maturity? Is it trading at a discount or at a premium? b. Suppose you buy the 2-year bond above, and you sell it after one year. What is the expected return on your investment?Kindly solve the question in 10 mins. It is urgent.Assume you have a 1-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 8% coupon rate and pays the $80 coupon once per year. The third has a 10% coupon rate and pays the $100 coupon once per year.a. If all three bonds are now priced to yield 8% to maturity, what are the prices of: (i) the zero-coupon bond; (ii) the 8% coupon bond; (iii) the 10% coupon bond?b. If you expect their yields to maturity to be 8% at the beginning of next year, what will be the price of each bond?c. What is your before-tax holding-period return on each bond? d. If your tax bracket is 30% on ordinary income and 20% on capital gains income, what will be the after-tax rate of return on each bond?e. Recalculate your answers to parts (b)–(d) under the assumption that you expect the yields to maturity on each bond to be 7% at the…One bond has a coupon rate of 5.4%, another a coupon rate of 8.2%. Both bonds pay interest annually, have 13-year maturities, and sell at a yield to maturity of 7.5%. a. If their yields to maturity next year are still 7.5%, what is the rate of return on each bond? b. Does the higher-coupon give a higher rate of return over this period?
- 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.)Assume you have a 1-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 7.6% coupon rate and pays the $76 coupon once per year. The third has a 8.6% coupon rate and pays the $86 coupon once per year. a. If all three bonds are now priced to yield 6% to maturity, what are the prices of: (i) the zero-coupon bond; (ii) the 7.6% coupon bond; (iii) the 8.6% coupon bond? Answer to a Current Prices Zero Coupon= $558.39 7.6% = $1117.76 8.6%= $1191.36 Need answers to part d and eAn investor has two bonds in his portfolio. Each bond matures in 4 years, has a face value of $1000, 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 bind remains at 9.6% over the next 4 years, what will be the price of each bond at the following time periods? Fill in the following table: T Price of Bind C Price of Bind Z O 1 2 3 4
- Suppose you purchase a $1,000 bond with a coupon rate of 8% matures in 5 years at par, and you plan to sell it at the end of 3 years at the prevailing market price. When you purchase the bond, your investment advisor predicts that similar bonds with 2 years to maturity yield at 6%. What is the expected yield to maturity on the bond?Suppose you purchase a 10-year bond with 6% annual coupons. You hold the bond for fouryears, and sell it immediately after receiving the fourth coupon. If the bond’s yield to maturitywas 5% 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 internal rate of return of your investment?Suppose you buy a bond with 3 years to maturity. The face value is 1000 and the coupon rate is 12 %. Assume after holding the bond for one year the market interest rate falls to 8 % a. What will be the new price of your bond? b. What will be the annual rate of return on your bond? c. Discuss the interest rate risk on bonds using your results in parts (a) and (b)?