a.
To calculate: The initial price of the bond.
Introduction:
It is a financial calculation used to calculate the current value of a future amount of money. It is also known as present discounted value.
b.
To calculate: The value of the zero-coupon rate bond.
Introduction:
Zero-coupon rate bond:
It is a debt security instrument that does not pay any periodic interest but rather trades at a deep discount from its face value, thus offering a profit at maturity.
c.
To calculate: The value of the zero-coupon rate bond.
Introduction:
Zero-coupon rate bond:
It is described as a debt security instrument that does not pay any periodic interest but rather trades at a deep discount from its face value, thus offering a profit at maturity.
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BUS 225 DAYONE LL
- Suppose that your firm issued a bond with 10 years until maturity, a face value of $1000, and a coupon rate of 7% (annual payments). The yield to maturity on this bond when it was issued was 6%. For questions e-g, assume that this bond DOES NOT pay any coupon a) What was its price when it was issued? b) For this zero-coupon bond, suppose it is actually sold for $500, what should the YTM be?arrow_forwardA 9-year bond has a yield of 14% and a duration of 8.157 years. If the market yield changes by 85 basis points, what is the percentage change in the bond's price? (Assume modified duration and a positive increase in yield change. Do not round intermediate calculations. Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) X Answer is complete but not entirely correct. The percentage change in the bond's price is 6.93 X %arrow_forwarda. Calculate the value of Macaulay’s duration for a 10-year, $1000 par value bond purchased today at a yield to maturity of 14% and a coupon rate of 10%. b. From the answer in (a) calculate the modified duration of the bond assuming the prevailing interest rate is still 14%. c. Now suppose the market interest rate on comparable bonds falls to 13 percent. What will be the approximate percentage change in the bond price.? (Hint: use the modified duration for your computation in (b))arrow_forward
- Suppose the yield on a two-year-old Treasury bond is 5 percent and the yield on a one-year Treasury bond is a 4 percent. If the maturity risk premium (MRP) on these bonds is zero (0), what is the expected one-year interest rate during the second year (Year 2)?arrow_forwardBond C has a coupon of 5.2 percent. Bond D has a coupon of 9.2 percent. Both bonds have 15 years to maturity and have a YTM of 7.4 percent. a. If interest rates suddenly rise by 1.6 percent, what is the percentage price change of these bonds? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) b. If interest rates suddenly fall by 1.6 percent, what is the percentage price change of these bonds? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) c- What is your conclusion?arrow_forwardBond J has a coupon rate of 5 percent and Bond K has a coupon rate of 11 percent. Both bonds have 14 years to maturity, make semiannual payments, and have a YTM of 8 percent. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Percentage change in price of Bond Percentage change in price of Bond J K Percentage change in price of Bond Percentage change in price of Bond J What if rates suddenly fall by 2 percent instead? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.). % K % % %arrow_forward
- Bond J has a coupon rate of 6 percent and Bond K has a coupon rate of 12 percent. Both bonds have 14 years to maturity, make semiannual payments, and have a YTM of 9 percent. a. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. What if rates suddenly fall by 2 percent instead? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. b. Bond J Bond K Bond J Bond K % % % %arrow_forwardA newly issued 10-year maturity, 5% coupon bond making annual coupon payments is sold to the public at a price of $710. The bond will not be sold at the end of the year. The bond is treated as an original - issue discount bond. Required: a. Calculate the constant yield price. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What will be an investor's taxable income from the bond over the coming year? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Please answer fast i give upvotearrow_forwardBond J has a coupon rate of 7 percent and Bond K has a coupon rate of 13 percent. Both bonds have 16 years to maturity, make semiannual payments, and have a YTM of 10 percent. a. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e. g., 32.16.) b. What if rates suddenly fall by 2 percent instead? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)arrow_forward
- Consider a bond with a face value of $1,000 that sells for an initial price of $700. It will pay no coupons for the first nine years and will then pay 11% coupons for the remaining 29 years. Choose an equation showing the relationship between the price of the bond, the coupon (in dollars), and the yield to maturity. O A. B. O C. O D. 700 = 700 = 700 = 700 = 110 110 9 (1+i)⁹ (1+i)⁹+1 + 110 + i) ⁹ + 1 (1 + 1,000 (1+i) 29-9 1,000 (1 + i) 9 +29 + +...+ 110 (1+i) 9+2 + 110 (1 + i)9+29-1 110 + (1 + i) ⁹ + 110 (1+i)9 +29 9+29-1 + 110 (1 + i)9 +29 + 1,000 (1+i) 9+29arrow_forwardCalculate the value of Macaulay’s duration for a 10-year, $1000 par value bond purchased today at a yield to maturity of 14% and a coupon rate of 10%. ii. From the answer in (i) calculate the modified duration of the bond assuming the prevailing interest rate is still 14%. iii. Now suppose the market interest rate on comparable bonds falls to 13 percent. What will be the approximate percentage change in the bond price.? (Hint: use the modified duration for your computation in (ii)) iv. Given the information in (i), did the bond sell at a discount or premium?arrow_forwardi. Calculate the value of Macaulay’s duration for a 10-year, $1000 par value bond purchased today at ayield to maturity of 14% and a coupon rate of 10%. ii. From the answer in (i) calculate the modified duration of the bond assuming the prevailing interest rate is still 14%. iii. Now suppose the market interest rate on comparable bonds falls to 13 percent. What will be theapproximate percentage change in the bond price.? (Hint: use the modified duration for yourcomputation in (ii)) iv. Given the information in (i), did the bond sell at a discount or premium? v. One of the most important structural changes affecting the banking community in Ghana is the drivetowards consolidation. Discuss three benefits of this move to the Ghanaian economy.arrow_forward
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