FOCUS ON PERSONAL FINANCE LL/ACCESS >BI
6th Edition
ISBN: 9781260529326
Author: Kapoor
Publisher: McGraw-Hill Publishing Co.
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Chapter 11, Problem 9P
a)
Summary Introduction
To determine: Approximate dollar price.
b)
Summary Introduction
To discuss: The reason for decrease in value of the bond.
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In 2001, you purchased a $1,000 corporate bond with a coupon interest rate of 5%. Today, comparable bonds are paying 4.30 percent.
What is the approximate dollar price for which you could sell your bond?
In your own words, describe why your bond increased in value.
Five years ago, you purchased a corporate for 942.41. At the time, the bond had a YTM of 10% and 9 years left to maturity. Today, the YTM on your bond is 8%. with this information, calculate the realized rate of return on the bond knowing that you bought the bond five years ago, you sold the bond today, you never reinvested the coupons paid on the bond, and the coupon rate on the bond is (9%,2).
A friend of yours just invested in an outstanding bond with a 5% annual coupon and a remainingmaturity of 10 years. The bond has a par value of $1,000, and the market interest rate is currently7%. How much did your friend pay for the bond? Is it a par, premium, or discount bond?
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FOCUS ON PERSONAL FINANCE LL/ACCESS >BI
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- One year ago, you purchased a 7 percent coupon bond with a face value of $1,000 when it was selling for 102.5 percent of par. Today, you sold this bond for 104 percent of par. What is your total dollar return on this investment? Can the calculator and excel solution be provided?arrow_forwardSuppose you purchased one of SWH's bonds on the day it was issued. The bond had a coupon rate of 5.5% (paid semiannually), the par value of $1,000, and a 15-year maturity. The investors' required rate of return at the time of issue was 5.5%. How much would you have paid to purchase the bond? Vb = $1,000 ✔Assume that immediately after you purchased the bond, the market conditions changed, so the investors' rb increased from 5.5% to 6.5%. How would the value of your bond be affected? Vb ↓ to $905.09 ✔What would happen to the bond price if rb decreased from 5.5% to 4.5% immediately after the bond was issued? Vb ↑ to $1108.23 Please make sure your answer is correct. Don't answer if you are not sure. don't use chat gpt as well. Thank youarrow_forwardYou are an investment manager evaluating two corporate bonds, each with a maturity value of $100,000. Each bond matures in exactly 10 years and each bond has a yield-to-maturity (YTM) of 5%. Bond 1 pays a coupon of 8% and Bond 2 pays a coupon of 3%. Without doing any math, which bond trades at a higher price? Which bond is more sensitive to changes in interest rates? If both bonds have the identical maturity date and YTM, then why do they trade at different prices? Is this a violation of The Law of One Price ? If you buy Bond 1, what is the NPV of the cash flows?arrow_forward
- A bondholder purchased an 8 percent coupon, $1,000 par three-year bond at a 7 percent yield. Interest rates then immediately fell to 6 percent and his bond was called at a price of $1,040. He reinvested his money and earned 6 percent on the $1,040 for three years. a) Did the call help or hurt the bondholder? b) What was his three-year rate of return on his original investment?arrow_forwardYou bought a $1,000-face 10%-coupon bond that had five years of remaining maturity one year ago. Rates were 5%. You sold the bond today and gained 6% on your entire bond investment. You sold the bond for $__. you bought the bond for? did interest rates rise or fall?arrow_forwardIf you purchased a ten-year corporate bond, $1,000 par value, with a 5 percent coupon, and suddenly the rate on comparable bonds are at 7 percent, what is the price of the bond today?arrow_forward
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