Four years ago, Vulcan Ltd. issued a 20-year $1000 par value bond that pays $40 semi-annual coupon payments. The annual required rate of return on these bonds today is 10 percent. a)Is this bond currently sell at par, discount or premium? Why? b)Normally, whether the yield to maturity (YTM) is expressed as annual percentage rate (APR) or effective annual rate (EAR)? c)What is the current bond price?
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Four years ago, Vulcan Ltd. issued a 20-year $1000 par value bond that pays $40 semi-annual coupon payments.
The annual required
a)Is this bond currently sell at par, discount or premium? Why?
b)Normally, whether the yield to maturity (YTM) is expressed as annual percentage rate (APR) or effective annual rate (EAR)?
c)What is the current
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- Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 5 Price $983.78 865.89 797.92 732.00 660.24 Required: a. Calculate the forward rate of interest for each year. b. How could you construct a 1-year forward loan beginning in year 3? c. How could you construct a 1-year forward loan beginning in year 4?a. 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))Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 5 Required: a. Calculate the forward rate of interest for each year. b. How could you construct a 1-year forward loan beginning in year 3? c. How could you construct a 1-year forward loan beginning in year 4? Required A Price $940.93 Complete this question by entering your answers in the tabs below. 868.39 800.92 735.40 670.48 Required B Maturity (years) 2 3 Calculate the forward rate of interest for each year. Note: Round your answers to 2 decimal places. Required C Forward Rate % % Prov 12 of 12 Next