D Question 13 5 pts Colton Corporation\'s semiannual bonds have a 12-year maturi
ID: 2618645 • Letter: D
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D Question 13 5 pts Colton Corporation's semiannual bonds have a 12-year maturity, an 6.50% nominal coupon paid value. The firm's annual bonds have the same risk, maturity, nominal interest rate, and par value, but these bonds pay interest annually. Neither bond is callable. To provide the same effective annual yield (EFF%), at what price should the annualpament bonds sell? Hint: Calculate the EFF% for the semiannual bond's coupon rate, and then use it as the YTM for the annual payment bond. Recall that EFF%-[1 + (Nominal Rate / n)r-1 semiannually, and sell at their $1,000 par Your answer should be between 980.00 and 1000.00, rounded to 2 decimal places, with no special characters. Note that the annual payment bond must sell for less than par since it receives the same cash flow, but not as quickly D Question 14 5 pts a 10-year 8% annual coupon bond at par of $1,000. Today (with 9 years to maturity) the bond is priced to yield 7.70%, if the bond is sold, what is the total return to the investor interest plus appreciation) for the 1-year holding period? Hint: The total return includes the coupon rate plus the appreciation (or depreciation) due to the change in rates. Therefore current price based on the vield, and then calculate the total return over 1 year based on that price and the coupon payment. Your answer should be between 6 32 and 17/42, rounded to 2 decimal places, with no special characters.Explanation / Answer
Ans 1) Nominal rate for annual coupon bond = (1+.065/2)^2 - 1 = 6.6056%
Price of bond = C* (1 - (1+r)^(-n))/r + face value/(1+r)^n
where c = 6.5% of $1000 = $65
r = 6.6056%
face value = $1000
n = 12
while putting all the above value we will get the value of bond
=$991.43
Ans 2) We will use above fomula to find the value of bond
here r = 7.7%
n = 9
c = 8% of 1000 = $80
Value of bond = $1018.98
Total return over one year = (1018.98 + 80 - 1000)/1000
= 9.89%
for aswering in the box use 9.90
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