3. Twitchy-a kind of junk bond – carries a 10% coupon rate, has a $1,000 face value and matures in 5 years. What is the change in the implicit required return (that is, YTM) of Twitchy, if the current market price of Twitchy, which is $950, falls to $850? a. -4.10% b. +2.96% c. +11.34% d. -14.30%
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- Suppose you are given the following information about the default-free, coupon-paying yield curve: Maturity (years) Coupon rate (annual payment) YTM 1 0.00% 2.587% a. Use arbitrage to determine the yield to maturity of a two-year zero-coupon bond. b. What is the zero-coupon yield curve for years 1 through 4? Note: Assume annual compounding. 2 11.00% 4.008% a. Use arbitrage to determine the yield to maturity of a two-year zero-coupon bond. The yield to maturity of a two-year, zero-coupon bond is %. (Round to two decimal places.) b. What is the zero-coupon yield curve for years 1 through 4? The yield to maturity for the three-year and four-year zero-coupon bond is found in the same manner as the two-year zero-coupon bond. The yield to maturity on the three-year, zero-coupon bond is %. (Round to two decimal places.) The yield to maturity on the four-year, zero-coupon bond is %. (Round to two decimal places.) Which graph best depicts the yield curve of the zero-coupon bonds? (Select the…Consider a two-period coupon bond with face value M = 100, recovery rate a = 0.5, per period coupon rate c = 10%, and survival rate λ = 0.9. If the risk-free rate per period is 5%, what is the bond price now? P = 9+5.5 1+5% + = 99.116 ■ 89.1+4.95 (1+5%)²Consider the following pure discount bonds with face value $1,000: Maturity Price 1 952.38 2 898.47 3 847.62 4 799.64 5 754.38 Suppose now that the current one-period interest rate is 5% and that the markets expects future one period interest rates to decline by %0.5 per year.(a). Assume first that the liquidity premium is constant at 1%. Draw a graph with the spot yield curve, the forward rates curve and a curve showing expected future one-period interest rates.(b). Assume next that the liquidity premium increases by 0.5% per year from initially being 1%. Draw a graph with the spot yield curve, the forward rates curve and a curve showing expected future one-period interest rates.
- c. What will be the yield to maturity on two-year zeros? (Do not round intermediate calculations. Round your answers to 2 decimal places.) YTM % d. If you purchase a two-year zero-coupon bond now, what is the expected total rate of return over the next year? (Hint. Compute the current and expected future prices.) Ignore taxes. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Expected total rate of return % e. If you purchase a three-year zero-coupon bond now, what is the expected total rate of return over the next year? (Hint. Compute the current and expected future prices.) Ignore taxes. (Do not round intermediate calculations. Round your answer to 2 decimalWhat is the price of a coupon bond with a face value of $300 and 7 years to maturity, which makes semi‐annual coupon payments at the rate of 3% p.a., if it is trading at a yield of 6%? A. $246.14 B. $249.17 C. $249.76 D. $246.73Please do not give solution in image formate thanku. A 2-year maturity bond with face value of $1,000 makes annual coupon payments of $96 and is selling at face value. What will be the annual rate of return on the bond if its yield to maturity at the end of the year is a. 6%? Rate of return in % = ? b. 9.6%? Rate of return in % = ? c. 11.6%? Rate of return in % = ?
- Assume the zero-coupon yields on default-free securities are as summarized in the following table: (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) Zero-coupon YTM What is the price of a five-year, zero-coupon, default-free security with a face value of $1,000? The price is $ (Round to the nearest cent.) 1 6.10% 2 6.50% (...) 3 6.70% 4 7.10% 5 7.30%The yield curve reveals that the 1-year spot rate is 4.9% and the 2- year spot rate is 7.9%. What is the duration of a 2-year bond with a face value of $1,000.00 making annual coupon payments of 32.9%? Do not report the modified duration. O a. 1.45 O b. 1.78 O c. 1.28 O d. 1.14 O e. 0.98 O f. 1.64 O g. 0.78 Oh. 0.581. Suppose that a zero-coupon bond that will be worth X dollars in Y years is currently selling for Z dollars. Investors believe that the average annual interest rate for the next Y years will be (a) (Y/Z)(1/X) – 1 (b) (X/Y)(1/2) – 1 (c) (Z/X)-1- Y (d) (X/Z)1/Y) – 1 (e) (Z/X)/Y)- 1
- Suppose there is a large probability that L will default on its debt. For the purpose of this example, assume that the value of Ls operations is 4 million (the value of its debt plus equity). Assume also that its debt consists of 1-year, zero coupon bonds with a face value of 2 million. Finally, assume that Ls volatility, , is 0.60 and that the risk-free rate rRF is 6%.1. Suppose that a 30-year Treasury bond offers a 5% coupon rate, paid semi-annually. The marketprice of the bond is $1,000, equal to its par value.a. What is the payback period for this bond?b. With such a long payback period, is the bond a bad investment?c. What is the discounted payback period for the bond assuming its 4% coupon rate is therequired return? What general principle does this example illustrate regarding a project’slife, its discounted payback period, and its NPV?2. Why is the NPV considered to be theoretically superior to all other capital budgeting techniques?Reconcile this result with the prevalence of the use of IRR in practice. How would you respond toyour CFO if she instructed you to use the IRR technique to make capital budgeting decisions onprojects with cash flow streams that alternate between inflows and outflows?1. Suppose that a 30-year Treasury bond offers a 5% coupon rate, paid semi-annually. The marketprice of the bond is $1,000, equal to its par value.a. What is the payback period for this bond?b. With such a long payback period, is the bond a bad investment?c. What is the discounted payback period for the bond assuming its 4% coupon rate is therequired return? What general principle does this example illustrate regarding a project’slife, its discounted payback period, and its NPV?