EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 15, Problem 3CP
A.
Summary Introduction
To calculate: The forward 1-year rate of interest for third year is to be calculated.
Introduction: The bonds issued by the US government are called Treasury Securities, and there are large numbers of forms for these. While the issues with shortest maturity are called T-Bills, the issues with maturity ranging from 2 to 10 years are called Treasury Notes.
B.
Summary Introduction
To determine: The conditions that support the calculated forward rate being an unbiased estimate as the 1 year spot rate in the current year.
Introduction: The bonds issued by the US government are called Treasury Securities, and there are many forms of these. While the issues with shortest maturity are called T-Bills, the issues with maturity ranging from 2 to 10 years are called Treasury Notes.
C.
Summary Introduction
To determine: The factors that could significantly affect on the forward rate becoming lower now, than a few months earlier.
Introduction: The bonds issued by the US government are called Treasury Securities, and there are many forms of these. While the issues with shortest maturity are called T-Bills, the issues with maturity ranging from 2 to 10 years are called Treasury Notes.
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Gilligan Co.'s bonds currently sell for $1,150. They have a 6.60% annual coupon rate and a 14-year maturity, a $1,000 par value, and are callable in 7 years at $1,066.00. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds, the YTC or the YTM?
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Taussig Corp.'s bonds currently sell for $1,090. They have a 7.35% annual coupon rate and a 10-year maturity, but they can be called in 3 years at $1,039.50. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds?
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Taussig Corp.'s bonds currently sell for P1,150. They have a 6.75% annual coupon rate and a 15-year maturity, but they can be called in 6 years at P1,067.50. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds, the YTC or the YTM?
Chapter 15 Solutions
EBK INVESTMENTS
Ch. 15 - Prob. 1PSCh. 15 - Prob. 2PSCh. 15 - Prob. 3PSCh. 15 - Prob. 4PSCh. 15 - Prob. 5PSCh. 15 - Prob. 6PSCh. 15 - Prob. 7PSCh. 15 - Prob. 8PSCh. 15 - Prob. 9PSCh. 15 - Prob. 10PS
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