An investor buys a five-year, 7.5% annual coupon bond priced to yield 5%. The investor plans to sell the bond in two years once the second coupon payment is received. a. Calculate the purchase price of the bond. b. Calculate the horizon yield assuming that the coupon reinvestment rate after the bond purchase and the YTM at the time of sale at 3.00% c. Calculate Macaulay Duration. (2 decimal places)

An investor buys a five-year, 7.5% annual coupon bond priced to yield 5%. The investor plans to sell the bond in two years once the second coupon payment is received. a. Calculate the purchase price of the bond. b. Calculate the horizon yield assuming that the coupon reinvestment rate after the bond purchase and the YTM at the time of sale at 3.00% c. Calculate Macaulay Duration. (2 decimal places)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You buy an 8-year, 3.30% annual - payment coupon bond priced to yield 5.30 %. You sell the bond at year - end, immediately after receiving the first coupon payment. Assuming the YTM stayed constant over the holding period, what are your capital gains from the sale of the bond? A. -0.09 B. -0.02 C. 0.02 D. 0.09
A person purchased a 10-year, 5 percent coupon (semiannual payments) bond for $1,050.00, what is the (annual) yield-to-maturity? Show the steps in solving it using Financial Calculator.
The following spot rates are available for periods 1 through 5, respectively; 1%, 2%, 3%, 4% and 5%. Assume annual coupon and annual compounding. a. Price a five years 2% coupon rate bond and calculate the bonds yield to maturity. b. Price a 11% coupon rate bond twice; first using the spot rate, second using section ‘a’ yield to maturity and briefly discuss any arbitrage opportunity if the bond is priced using the later method.
A bond that has features: coupon of rate of 5 percent principal: $1,000 term to maturity: 10 years a. what will the holder receive when the bond matures? b. if the current rate of interest on comparable debt is 8 percent, what should be the price of this bond? would you expect the firm to call this bond? why? c. if the bond has a sinking fund that requires the firm to set aside annually with a trustee sufficient funds to retire the entire issue at maturity, how much must the firm remit each year for ten years if the fundas earn 8 percent annually and there is $100 million oustanding?
An investor buys an 8% annual payment bond with 3 years to maturity. The bond has a yield-to-maturity of 7%. Assume the par value is 100. The bond's modified duration is closest to: (Please provide the formula and steps to achieve both the macaulay duration and modified duration figure manully)
An investor purchases a 13-year, 5.5% annual coupon payment bond at a price equal to par value, After the bond is purchased and before the first coupon is received, interest rates increase by 1.2%. The investor sells the bond after 5 years. Assume that interest rates remain unchanged at 5.5+1.2% over the 5-year holding period. Assuming that all coupons are reinvested over the holding period, what is the investor's 5 year horizon yield?
A bond certificate with a value of P 1,081,038.07 has a par value of P 1,000,000.00 and a redemption price of P 1,030,000.00 at the end of 10 years . If the bond rate is 9% . Calculate the yield that the investor obtained from his investment .
2) You have a liability of 1,000 at the end of year 1 and another liability of L at the end of year 2. You create a portfolio of assets that exactly match your liabilities using the following available bonds with annual coupons: Term of bond Coupon Rate Yield Rate 3% 6% 1-year 2-year 5% 8% Find L if you invested 932 to purchase the 1-year bond.
An investor purchases a 10-year, 5.9% annual coupon payment bond at a price equal to par value. After the bond is purchased and before the first coupon is received, interest rates increase by 1.5%. The investor sells the bond after 7 years. Assume that interest rates remain unchanged at 5.9+1.5% over the 7-year holding period. Assuming that all coupons are reinvested over the holding period, what is the investor’s 7-year horizon yield?
(1) Consider a 15-year 7% semiannual pay bond, if the price of the bond per $1,000 of par value is $802.24, and the investor will hold the bond to maturity. What are the following answers? a) Current yield b) Yield to maturity Total coupon interest d) Interest on interest e) Capital gain/Loss
Consider the following risk-free bonds available for sale in the bond market (assume annual +Coupons). Bond's maturity Ask Price (per $100 of Coupon rate (in %) face value 1-year bond 100.0040 0.125% 2-year bond 101.2100 2% 3-year bond 101.2140 1.625% Construct the term structure of interest rates for these three periods. b. Your company plans to issue three-year maturity coupon bonds. Based on its excellent credit rating, your company pays a low constant 3% risk premium over the relevant term-structure rates. You plan to issue bonds priced at par (i.e. price = face value). At what level should you plan to set the coupon on your bond to justify this price? c. Now assume that your company wishes to issue 3-year zero coupon bonds. At what price will these bonds sell?
A bond has following characteristics: it was issued on 14.06.2018 and has 10 years to maturity. Coupon is paid semi-annually and carries interest rate of 3,2%. Market interest rate is currently 2,9% for similar issues. Investor purchased the bond on 19.11.2021. a. Calculate MacDuration b. Calculate ModDuration c. When market interest rates increase by 50 basis points, calculate price effect using results obtained in question (b)

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