There are three bonds that mature at the same time, have the same par value, and areexpected to pay their first annual coupon 1 next year. The bonds are detailed in the belowtable.BondABсPVPVPVPresent ValueB???PVBIf ca < c and rb > r, then what can we say about the prices of the bonds today? (Enter >, <, or?)PVCPVYield to MaturityCrrbCoupon Ratecaсс

The coupon rate of bond A is lower than that of both bond B and bond C.Bond B has a higher yield to…

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. Present Value ? IT ? ? Bond A B C PV PV PV PV B PV C Yield to Maturity PV c r If car, then what can we say about the prices of the bonds today? (Enter>, <, or ?) rb r Coupon Rate ca C с

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. Present Value ? IT ? ? Bond A B C PV PV PV PV B PV C Yield to Maturity PV c r If car, then what can we say about the prices of the bonds today? (Enter>, <, or ?) rb r Coupon Rate ca C с

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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How do investors calculate the net present value of a bond? If a bond's coupon payment is C, the interest rate is R, and the bond's coupon payment is made in each period for T years at which time the original principal, P, is repaid, then the bond's present discounted value (PDV) is C A. PDV = + (1 + R) (1 + R? (1 + R)T B. PDV = C(1 + R) + C(1 + R)2 - + C(1 + R)T + P(1 + R)T + C P OC. PDV = - + R R2 RT RT C D. PDV = P + C C (1 + R) (1+R)2 (1 + R)T C E. PDV = + + + + (1 + R) (1+ R)2 (1 + R)T (1 + R)T If the interest rate is 9 percent, what is the present value of a perpetuity that pays $50,000 each year, forever? The perpetuity's value is $ (Enter a numeric response rounded to two decimal places.)
Consider the following bonds: . What is the percentage change in the price of each bond if its yield to maturity falls from 6.3% to 5.3%? The price of bond A at 6.3% YTM per $100 face value is $ (Round to the nearest cent.) - X Data table (Click on the following icon g in order to copy its contents into a spreadsheet.) Bond Coupon Rate (annual payments) Maturity (years) A 0.0% 15 В 0.0% 10 3.6% 15 8.4% 10 Print Done
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
c) Suppose you observe the following three bonds. Assume that all bonds are denominated at $100 face value per contract and that they pay their coupons annually. Price Coupon Maturity (years) Bond A 111.42 15 3 Bond B 108.33 15 Bond C 116.61 15 1 i) Compute the spot rates r0,1, r0,2 and r0,3. ii) Compute the forward rates r1,2 and r2,3.
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 Show Transcribed Text B) How could you construct a 1-year forward loan beginning in year 3? (Face Value) C) How could you construct a 1-year forward loan beginning in year 4? (Face Value) Required A Required B Complete this question by entering your answers in the tabs below. Face value Rate of synthetic loan → Show Transcribed Text Price $ 970.93 898.39 836.92 How could you construct a 1-year forward loan beginning in year 3? Note: Round your Rate of synthetic loan answer to 2 decimal places. Required A 776.20 685.42 Required B Face value Rate of synthetic loan Required C 7.85 % Required C How could you construct a 1-year forward loan beginning in year 4? Note: Round your Rate of synthetic loan answer to 2 decimal places. Ċ 13.29 %
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 plot of the yields on bonds with different terms to maturity but the same risk, liquidity, and tax considerations is known as O A. a yield curve. B. a risk-structure curve. OC. a term-structure curve. 5- O D. an interest-rate curve. Suppose people expect the interest rate on one-year bonds for each of the next four years to be 3%, 6%, 5%, and 6%. If the expectations theory of the term structure of interest rates is correct, then the implied interest rate on bonds with a maturity of four years is nearest whole number). %. (Round your response to the 2- Refer to the figure on your right. Suppose the expected interest rates on one-year bonds for each of the next four years are 4%, 5%, 6%, and 7%, respectively. 1. 1.) Use the line drawing tool (once) to plot the yield curve generated. 3 Term to Maturity in Years 2.) Use the point drawing tool to locate the interest rates on the next four years. 5. 3- Interest Rate .....
1. table: Consider following three bonds whose features are summarized in the following Maturity (Years) Coupon Rate (%) YTM (%) Answer the following question by using Excel and show the cells that you use to calculate the values. 2 5 5.5 6 5 6 6 10 6.5 The face value of bonds is $100, YTM stands for yield to maturity, coupons are received annually. We structure a butterfly strategy (combination of bullet and barbell) in the following way: We sell 10000 5-year maturity bonds. We buy 5000 2-year maturity bonds and 5000 10-year maturity bonds. a) Suppose that one month later the YTM curve has changed. A flattening movement has happened so that the curve rotates around the body. We consider the following movement "+50/0/-50" meaning that the short wing YTM increases by 50 bps, the body does not move and the long wing YTM decreases by 50 bps. Compute the total return of the butterfly. b) Same question with a steepening movement "-50/0/+50".
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|
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
The current zero-coupon yield curve for risk-free bonds is as follows: What is the price per $100 face value of a two-year, zero-coupon, risk-free bond? The price per $100 face value of the two-year, zero-coupon, risk-free bond is $ Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) 1 2 YTM 4.99% 5.53% Print 3 5.72% Done (Round to the nearest cent.) 4 5.92% 5 6.07% X
Consider the following bonds: (Click on the following icon in order to copy its contents into a spreadsheet.) Coupon Rate (annual payments) Maturity (years) 13 0% 0% 12 2% 13 8% 12 Bond A B C D a. What is the percentage change in the price of each bond if its yield to maturity falls from 8% to 7%? b. Which of the bonds A through D is the most sensitive to a 1% drop in interest rates from 8% to 7% and why? Which bond is the least sensitive? Provide an intuitive explanation for your answer. Note: Assume annual compounding. a. What is the percentage change in the price of each bond if its yield to maturity falls from 8% to 7%? The percentage change in bond A is 5.47%. (Round to two decimal places.)

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