ver the following: Two bonds, both with 10 years to maturity, have the same yield to maturity (equal to 5%) but different coupon rates. Coupon payments annual. Bond A has a Macaulay duration of 7.06 and bond B has a Macaulay duration of 8.76. Based on this information, explain which you think has the lower coupon rate. Be sure to present your reasom Bond A in part (i) has a face value of $100 and a coupon rate of 4. What is its price?

ver the following: Two bonds, both with 10 years to maturity, have the same yield to maturity (equal to 5%) but different coupon rates. Coupon payments annual. Bond A has a Macaulay duration of 7.06 and bond B has a Macaulay duration of 8.76. Based on this information, explain which you think has the lower coupon rate. Be sure to present your reasom Bond A in part (i) has a face value of $100 and a coupon rate of 4. What is its price?

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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B. Directions: Compute for the following given statement and justify your answer. 1. Consider two bonds. Bond A has a face value of P100,000 and a stated rate of 12%. Bond B has a face value of P100,000 and a stated rate of 8%. Both bonds have the same maturity. Which bond has the greatest interest rate risk? 2. Consider two bonds. Bond X has a face value of P100,000 and five years remaining to maturity. Bond Y has a face value of P100,000 and ten years remaining to maturity. Both bonds have the same stated rate of 12%. Which bond has the greatest interest rate risk?
Consider the following bonds. Bond A B с D Coupon Rate (annual payments) 0.0% 0.0% 3.5% 7.8% Maturity (years) 10 15 15 10 Which of the bonds A to D is most sensitive to a 1% drop in interest rates from 6.7% to 5.7%? Which bond is least sensitive? Provide an intuitive explanation for your answer.
The following information about bonds A, B, C, and D are given. Assume that bond prices admit noarbitrage opportunities. What is the convexity of Bond D?Cash Flow at the end ofBond Price Year 1 Year 2 Year 3A 91 100 0 0B 86 0 100 0C 78 0 0 100D ? 5 5 105
Calculating the risk premium on bonds The text presents a formula where (1+1) = (1-p)(1 +i+x) + p(0) where i is the nominal interest rate on a riskless bond x is the risk premium p is the probability of default (bankruptcy) If the probability of bankruptcy is zero, the rate of interest on the risky bond is When the nominal interest rate for a risky borrower is 8% and the nominal policy rate of interest is 3%, the probability of bankruptcy is %. (Round your response to two decimal places.) When the probability of bankruptcy is 6% and the nominal policy rate of interest is 4%, the nominal interest rate for a risky borrower is %. (Round your response to two decimal places.) When the probability of bankruptcy is 11% and the nominal policy rate of interest is 4%, the nominal interest rate for a risky borrower is %. (Round your response to two decimal places.) The formula assumes that payment upon default is zero. In fact, it is often positive. How would you change the formula in this case?…
Which bond is more sensitive to an interest rate change of 1 percent? Bond A: Yield to maturity = 4.00%, maturity = 8 years, coupon = 6% or £60, face value = £1,000. OR Bond B: Yield to maturity = 3.50%, maturity = 5 years, coupon = 7% or £70, face value = £1,000. A. Bond A B. Bond B C. Cannot be determined D. Both are equally sensitive.
Compute for the following given statement and justify your answer. 1. Consider two bonds. Bond A has a face value of ₱100,000 and a stated rate of 12%. Bond B has a facevalue of ₱100,000 and a stated rate of 8%. Both bonds have the same maturity. Which bond has thegreatest interest rate risk?
First, it is known that two bonds have the same redemption value and coupon rate and are priced at the same yield rate. The first bond has a tenor of 4 years, while the second bond has a tenor of 10 years. The market yield rate then falls by 1% such that the prices of the first and second bonds change by D1% and D₂%, respectively, from their initial prices. Determine the relationship between D1 and D₂ Notes: |x| is the absolute value of x. a. D1 and D2 have negative signs and |D1|>|D2|.b. D1 and D2 have a positive sign and |D1|>|D2|.c. D1 and D2 have positive signs and |D1|<|D2|.d. D1 and D2 have different signs and |D1|>|D2|.e. D1 and D2 have different signs and |D1|<|D2|
Explain what you see from the pricing calculations. How do the two bonds differ? Bond C Bond Price = PV(rate,nper,pmt,fv) Given: n = Period which takes values from 0 to the nth period = 0,1,2,3 & 4 Cn = Coupon payment in the nth period = 10%*$1,000 = $100 YTM = interest rate or required yield = 9.6% P = Par Value of the bond = $1,000 Bond Z Bond Price = PV(rate,nper,pmt,fv) Given: n = Period which takes values from 0 to the nth period = 0,1,2,3 & 4 Cn = Coupon payment in the nth period = 0%*$1,000 = $0.00 YTM = interest rate or required yield = 9.6% P = Par Value of the bond = $1,000 years Bond A Bond Z 4 $1,012.79 $693.04 3 $1,010.02 $759.57 2 $1,006.98 $832.49 1 $1,003.65 $912.41 0 $1,000.00 $1,000.00
Bond A has a duration of 14.2 and Bond B has a duration of 13.9 years. Therefore, relative to Bond B, Bond A has ________________ . A) a higher price B) a higher yield to maturity C) a longer time until maturity D) a higher price sensitivity to changes in the yield to maturity
a.) what are the main characteristics of a bond? Provide examples of different types of bonds in terms of coupons and maturity. b.) explain the difference between "coupon rate" and "yield to maturity ". Show using examples, how changes in the coupon rate and yield to maturity affects the bond price. c.) You are asked to put a value on a bond which promises eight annual coupon of £50 and will repay its face value of £1000 at the end of eight years. You observe that other similar bonds have yields to maturity of 9per cent. i.) How much is this bond worth? ii.) You are offered the bond for a price of £755.5. What yield to maturity does this represent? d.) You believe that next year XYZ plc will pay a dividend of £2 on its common stock. There after you expect dividend to grow at a rate of 4% a year in perpetuity. If you require a return of 12% on your investment. i.) How much should you be prepared to pay for the stock? ii.) Assuming that the expected stock price at the end of…
Consider the following bonds: •Bond A: A 2-year zero-coupon bond with a face value of $100 and 6% YTM. •Bond B: A 2-year par-value bond with a face value of $100 and 6% coupon rate. *Bond C: A 2-year par-value bond with a face value of $100 and 7% coupon rate. Suppose the yield curve shifts upwards by one percent. Which bond among bonds A, B, and C will experience the largest percentage price change? Which will have the lowest percentage price change? O a. Bond A; Bond C O b. Bond A; Bond B O c. Bond B; Bond C O d. Bond C; Bond B
There are three bonds that mature at the same time, have the same par value, and are expected to pay their first annual coupon 1 next year. The bonds are detailed in the below table. Bond A B с PV PV PV Present Value B ? ? ? PV B If ca r, then what can we say about the prices of the bonds today? (Enter >, <, or ?) PV C PV Yield to Maturity C r rb Coupon Rate ca с с

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