The prices of zero coupon bonds, 8% and 10% coupon bonds at maturity Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

Question

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Answer 1

Question

Chapter 14, Problem 10PS

a.

Summary Introduction

To determine: The prices of zero coupon bonds, 8% and 10% coupon bonds at maturity

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

a.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bondsat maturity are $463.19, $1,000 and $1,134.20 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10=$1,0002.16=$463.19

So, the price of zero coupon bond is $463.19

(ii)Calculate the price of coupon bond (8%),

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10=$74.074+$68.587+$63.506+.....+$500.248=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10=$92.592+$85.733+$79.383+.....+$509.512=$1,134.20

So, the coupon bond price (10%) is $1,134.20

b.

Summary Introduction

To determine: The price of each bond.

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

b.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii) Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii) Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

c.

Summary Introduction

To determine: The before tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

c.

Expert Solution

Answer to Problem 10PS

The before tax holding period return on each stock is shown in table.

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculation of the pre tax rate of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
PRICE AFTER 1 YEAR	500.25	1000	1124.94
PRICE AT 10 YEARS	463.19	1000	1134.2
CHANGE IN PRICE	37.06	0	-9.26
COUPON INCOME	0	80	100
PRE-TAX INCOME(PRICE+COUPON)	37.06	80	90.74
PRE-TAX RATE OF RETURN	8.00%	8.00%	8.00%

d.

Summary Introduction

To determine: The after tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

d.

Expert Solution

Answer to Problem 10PS

The after tax holding period return on each is shown in table

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculate the after tax of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
TAXES	7.412	24	28.148
AFTER TAX INCOME	29.92	56	62.59
AFTER TAX RATE OF INTEREST	6.46%	5.60%	5.52%

e.

Summary Introduction

To determine: The price of each bond with maturity of 7% at the beginning

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

e.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii)Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

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Students have asked these similar questions

Assume you have a 1-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 8% coupon rate and pays the $80 coupon once per year. The third has a 10% coupon rate and pays the $100 coupon once per year.a. If all three bonds are now priced to yield 8% to maturity, what are the prices of: (i) the zero-coupon bond; (ii) the 8% coupon bond; (iii) the 10% coupon bond?b. If you expect their yields to maturity to be 8% at the beginning of next year, what will be the price of each bond?c. What is your before-tax holding-period return on each bond? d. If your tax bracket is 30% on ordinary income and 20% on capital gains income, what will be the after-tax rate of return on each bond?e. Recalculate your answers to parts (b)–(d) under the assumption that you expect the yields to maturity on each bond to be 7% at the…

Assume you have a 1-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 8% coupon rate and pays the $80 coupon once per year. The third has a 10% coupon rate and pays the $100 coupon once per year. 1. If all three bonds are now priced to yieid 8% to maturity, what are their prices? 2. If you expect their yields to maturity to be 8% at the beginning of next year, what will their prices be then? What is your before-tax holding-period return on each bond? If your tax bracket is 30% on ordinary income and 20% on capital gains income, what will your after-tax rate of return be on each? 3. Recalculate your answer to (2) under the assumption that you expect the yields to maturity on each bond to be 7% at the beginning of next year.

Assume you have a one-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has a 7.5% coupon rate and pays the $75 coupon once per year. The third has a 9.5% coupon rate and pays the $95 coupon once per year. Assume that all bonds are compounded annually. a. If all three bonds are now priced to yield 7.5% to maturity, what are their prices? (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. If you expect their yields to maturity to be 7.5% at the beginning of next year, what will their prices be then? (Do not round intermediate calculations. Round your answers to 2 decimal places.) c. What is your rate of return on each bond during the one-year holding period? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 2

Question

Chapter 14, Problem 10PS

a.

Summary Introduction

To determine: The prices of zero coupon bonds, 8% and 10% coupon bonds at maturity

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

a.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bondsat maturity are $463.19, $1,000 and $1,134.20 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10=$1,0002.16=$463.19

So, the price of zero coupon bond is $463.19

(ii)Calculate the price of coupon bond (8%),

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10=$74.074+$68.587+$63.506+.....+$500.248=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10=$92.592+$85.733+$79.383+.....+$509.512=$1,134.20

So, the coupon bond price (10%) is $1,134.20

b.

Summary Introduction

To determine: The price of each bond.

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

b.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii) Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii) Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

c.

Summary Introduction

To determine: The before tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

c.

Expert Solution

Answer to Problem 10PS

The before tax holding period return on each stock is shown in table.

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculation of the pre tax rate of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
PRICE AFTER 1 YEAR	500.25	1000	1124.94
PRICE AT 10 YEARS	463.19	1000	1134.2
CHANGE IN PRICE	37.06	0	-9.26
COUPON INCOME	0	80	100
PRE-TAX INCOME(PRICE+COUPON)	37.06	80	90.74
PRE-TAX RATE OF RETURN	8.00%	8.00%	8.00%

d.

Summary Introduction

To determine: The after tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

d.

Expert Solution

Answer to Problem 10PS

The after tax holding period return on each is shown in table

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculate the after tax of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
TAXES	7.412	24	28.148
AFTER TAX INCOME	29.92	56	62.59
AFTER TAX RATE OF INTEREST	6.46%	5.60%	5.52%

e.

Summary Introduction

To determine: The price of each bond with maturity of 7% at the beginning

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

e.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii)Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

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Answer 3

Question

Chapter 14, Problem 10PS

a.

Summary Introduction

To determine: The prices of zero coupon bonds, 8% and 10% coupon bonds at maturity

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

a.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bondsat maturity are $463.19, $1,000 and $1,134.20 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10=$1,0002.16=$463.19

So, the price of zero coupon bond is $463.19

(ii)Calculate the price of coupon bond (8%),

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10=$74.074+$68.587+$63.506+.....+$500.248=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10=$92.592+$85.733+$79.383+.....+$509.512=$1,134.20

So, the coupon bond price (10%) is $1,134.20

b.

Summary Introduction

To determine: The price of each bond.

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

b.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii) Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii) Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

c.

Summary Introduction

To determine: The before tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

c.

Expert Solution

Answer to Problem 10PS

The before tax holding period return on each stock is shown in table.

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculation of the pre tax rate of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
PRICE AFTER 1 YEAR	500.25	1000	1124.94
PRICE AT 10 YEARS	463.19	1000	1134.2
CHANGE IN PRICE	37.06	0	-9.26
COUPON INCOME	0	80	100
PRE-TAX INCOME(PRICE+COUPON)	37.06	80	90.74
PRE-TAX RATE OF RETURN	8.00%	8.00%	8.00%

d.

Summary Introduction

To determine: The after tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

d.

Expert Solution

Answer to Problem 10PS

The after tax holding period return on each is shown in table

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculate the after tax of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
TAXES	7.412	24	28.148
AFTER TAX INCOME	29.92	56	62.59
AFTER TAX RATE OF INTEREST	6.46%	5.60%	5.52%

e.

Summary Introduction

To determine: The price of each bond with maturity of 7% at the beginning

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

e.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii)Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

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Answer 4

Question

Chapter 14, Problem 10PS

a.

Summary Introduction

To determine: The prices of zero coupon bonds, 8% and 10% coupon bonds at maturity

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

a.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bondsat maturity are $463.19, $1,000 and $1,134.20 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10=$1,0002.16=$463.19

So, the price of zero coupon bond is $463.19

(ii)Calculate the price of coupon bond (8%),

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10=$74.074+$68.587+$63.506+.....+$500.248=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10=$92.592+$85.733+$79.383+.....+$509.512=$1,134.20

So, the coupon bond price (10%) is $1,134.20

b.

Summary Introduction

To determine: The price of each bond.

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

b.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii) Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii) Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

c.

Summary Introduction

To determine: The before tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

c.

Expert Solution

Answer to Problem 10PS

The before tax holding period return on each stock is shown in table.

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculation of the pre tax rate of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
PRICE AFTER 1 YEAR	500.25	1000	1124.94
PRICE AT 10 YEARS	463.19	1000	1134.2
CHANGE IN PRICE	37.06	0	-9.26
COUPON INCOME	0	80	100
PRE-TAX INCOME(PRICE+COUPON)	37.06	80	90.74
PRE-TAX RATE OF RETURN	8.00%	8.00%	8.00%

d.

Summary Introduction

To determine: The after tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

d.

Expert Solution

Answer to Problem 10PS

The after tax holding period return on each is shown in table

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculate the after tax of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
TAXES	7.412	24	28.148
AFTER TAX INCOME	29.92	56	62.59
AFTER TAX RATE OF INTEREST	6.46%	5.60%	5.52%

e.

Summary Introduction

To determine: The price of each bond with maturity of 7% at the beginning

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

e.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii)Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

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Answer 5

Chapter 14, Problem 10PS

a.

Summary Introduction

To determine: The prices of zero coupon bonds, 8% and 10% coupon bonds at maturity

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

a.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bondsat maturity are $463.19, $1,000 and $1,134.20 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10=$1,0002.16=$463.19

So, the price of zero coupon bond is $463.19

(ii)Calculate the price of coupon bond (8%),

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10=$74.074+$68.587+$63.506+.....+$500.248=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10=$92.592+$85.733+$79.383+.....+$509.512=$1,134.20

So, the coupon bond price (10%) is $1,134.20

b.

Summary Introduction

To determine: The price of each bond.

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

b.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii) Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii) Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

c.

Summary Introduction

To determine: The before tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

c.

Expert Solution

Answer to Problem 10PS

The before tax holding period return on each stock is shown in table.

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculation of the pre tax rate of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
PRICE AFTER 1 YEAR	500.25	1000	1124.94
PRICE AT 10 YEARS	463.19	1000	1134.2
CHANGE IN PRICE	37.06	0	-9.26
COUPON INCOME	0	80	100
PRE-TAX INCOME(PRICE+COUPON)	37.06	80	90.74
PRE-TAX RATE OF RETURN	8.00%	8.00%	8.00%

d.

Summary Introduction

To determine: The after tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

d.

Expert Solution

Answer to Problem 10PS

The after tax holding period return on each is shown in table

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculate the after tax of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
TAXES	7.412	24	28.148
AFTER TAX INCOME	29.92	56	62.59
AFTER TAX RATE OF INTEREST	6.46%	5.60%	5.52%

e.

Summary Introduction

To determine: The price of each bond with maturity of 7% at the beginning

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

e.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii)Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

Answer 6

Chapter 14, Problem 10PS

a.

Summary Introduction

To determine: The prices of zero coupon bonds, 8% and 10% coupon bonds at maturity

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

a.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bondsat maturity are $463.19, $1,000 and $1,134.20 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10=$1,0002.16=$463.19

So, the price of zero coupon bond is $463.19

(ii)Calculate the price of coupon bond (8%),

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10=$74.074+$68.587+$63.506+.....+$500.248=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10=$92.592+$85.733+$79.383+.....+$509.512=$1,134.20

So, the coupon bond price (10%) is $1,134.20

Answer 7

Chapter 14, Problem 10PS

a.

Summary Introduction

To determine: The prices of zero coupon bonds, 8% and 10% coupon bonds at maturity

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

Answer 8

a.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bondsat maturity are $463.19, $1,000 and $1,134.20 respectively

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10=$1,0002.16=$463.19

So, the price of zero coupon bond is $463.19

(ii)Calculate the price of coupon bond (8%),

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10=$74.074+$68.587+$63.506+.....+$500.248=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10=$92.592+$85.733+$79.383+.....+$509.512=$1,134.20

So, the coupon bond price (10%) is $1,134.20

Answer 13

b.

Summary Introduction

To determine: The price of each bond.

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

b.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii) Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii) Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

Answer 14

b.

Summary Introduction

To determine: The price of each bond.

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. Bonds are referred to as an instrument for getting fixed income.

Answer 15

b.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Answer 16

b.

Expert Solution

Answer 17

b.

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii) Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii) Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

Answer 20

c.

Summary Introduction

To determine: The before tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

c.

Expert Solution

Answer to Problem 10PS

The before tax holding period return on each stock is shown in table.

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculation of the pre tax rate of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
PRICE AFTER 1 YEAR	500.25	1000	1124.94
PRICE AT 10 YEARS	463.19	1000	1134.2
CHANGE IN PRICE	37.06	0	-9.26
COUPON INCOME	0	80	100
PRE-TAX INCOME(PRICE+COUPON)	37.06	80	90.74
PRE-TAX RATE OF RETURN	8.00%	8.00%	8.00%

Answer 21

c.

Summary Introduction

To determine: The before tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

Answer 22

c.

Expert Solution

Answer to Problem 10PS

The before tax holding period return on each stock is shown in table.

Answer 23

c.

Expert Solution

Answer 24

c.

Expert Solution

Answer 25

Expert Solution

Answer 26

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculation of the pre tax rate of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
PRICE AFTER 1 YEAR	500.25	1000	1124.94
PRICE AT 10 YEARS	463.19	1000	1134.2
CHANGE IN PRICE	37.06	0	-9.26
COUPON INCOME	0	80	100
PRE-TAX INCOME(PRICE+COUPON)	37.06	80	90.74
PRE-TAX RATE OF RETURN	8.00%	8.00%	8.00%

Answer 27

d.

Summary Introduction

To determine: The after tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

d.

Expert Solution

Answer to Problem 10PS

The after tax holding period return on each is shown in table

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculate the after tax of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
TAXES	7.412	24	28.148
AFTER TAX INCOME	29.92	56	62.59
AFTER TAX RATE OF INTEREST	6.46%	5.60%	5.52%

Answer 28

d.

Summary Introduction

To determine: The after tax holding period return on each

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

Answer 29

d.

Expert Solution

Answer to Problem 10PS

The after tax holding period return on each is shown in table

Answer 30

d.

Expert Solution

Answer 31

d.

Expert Solution

Answer 32

Expert Solution

Answer 33

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Calculate the after tax of return,

	ZERO COUPON BOND	8% COUPON BOND	10% COUPON BONDS
TAXES	7.412	24	28.148
AFTER TAX INCOME	29.92	56	62.59
AFTER TAX RATE OF INTEREST	6.46%	5.60%	5.52%

Answer 34

e.

Summary Introduction

To determine: The price of each bond with maturity of 7% at the beginning

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

e.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t

r= rate of return

T= the maturity period

(i)At zero coupon bond, the price is,

Price=ParValue (1+r)T=$1,000 (1+8%) 10−1=$1,0001.99=$500.25

So, the price of zero coupon bonds is $500.25

(ii)Calculate the price of coupon bond (8%)

Price=ParValue (1+r)T=$80 (1+8%)1+$80 (1+8%)2+$80 (1+8%)3+......+$80 (1+8%) 10−1=$74.074+$68.587+$63.506+.....+$500.268=$1,000

So, the coupon bond price (8%) is $1,000

(iii)Calculate the price of coupon bond (10%),

Price=ParValue (1+r)T=$100 (1+8%)1+$100 (1+8%)2+$100 (1+8%)3+......+$100 (1+8%) 10−1=$92.592+$85.733+$79.383+.....+$509.273=$1,124.94

So, the coupon bond price (10%) is $1,124.94

Answer 35

e.

Summary Introduction

To determine: The price of each bond with maturity of 7% at the beginning

Introduction: The bonds are the units of debt issued incorporate and it is securitized as a trade asset. The price of the bonds is inversely proportional to the interest rates. : Bonds are referred to as an instrument for getting fixed income.

Answer 36

e.

Expert Solution

Answer to Problem 10PS

The prices of zero coupon bonds, 8% and 10% coupon bonds are $500.25, $1,000 and $1,124.94 respectively

Answer 37

e.

Expert Solution

Answer 38

e.

Expert Solution

Answer 39

Expert Solution

Answer 40

Explanation of Solution

Given Information: The rate of return, maturity period is given

The bond price is the discounted value of future cash flow in the current period. It is the sum assured of the current values of all. The price of the bond value is contradictory to the yield to maturity. Bonds are traded at a price of different face value as the time lapses.

Holding period return is the total value yield on an investment during the time it is held.

Price=∑t=1TCoupon (1+r)t+ParValue(1+r)t