Suppose you buy a 7.6 percent coupon bond today for $1,070. The bond has 12 year
ID: 2722477 • Letter: S
Question
Suppose you buy a 7.6 percent coupon bond today for $1,070. The bond has 12 years to maturity.
What rate of return do you expect to earn on your investment?
Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. What price will your bond sell for
What is the Macaulay duration of a 5.6 percent coupon bond with ten years to maturity and a current price of $1,057.70?
Consider a 4.6 percent coupon bond with five years to maturity and a current price of $1,046.10. Suppose the yield on the bond suddenly increases by 2 percent?
Use duration to estimate the new price of the bond?
LKD Co. has 13 percent coupon bonds with a YTM of 8.9 percent. The current yield on these bonds is 9.5 percent. How many years do these bonds have left until they mature?
Ghost Rider Corporation has bonds on the market with 8 years to maturity, a YTM of 5 percent, and a current price of $945. What must the coupon rate be on the company’s bonds?
Great Wall Pizzeria issued 5-year bonds one year ago at a coupon rate of 5.9 percent. If the YTM on these bonds is 7.7 percent, what is the current bond price?
Atlantis Fisheries issues zero coupon bonds on the market at a price of $477 per bond. These are callable in 8 years at a call price of $540. Using semiannual compounding, what is the yield to call for these bonds
Suppose you buy a 7.6 percent coupon bond today for $1,070. The bond has 12 years to maturity.
What rate of return do you expect to earn on your investment?
Two years from now, the YTM on your bond has increased by 2 percent, and you decide to sell. What price will your bond sell for
What is the Macaulay duration of a 5.6 percent coupon bond with ten years to maturity and a current price of $1,057.70?
Consider a 4.6 percent coupon bond with five years to maturity and a current price of $1,046.10. Suppose the yield on the bond suddenly increases by 2 percent?
a.Use duration to estimate the new price of the bond?
LKD Co. has 13 percent coupon bonds with a YTM of 8.9 percent. The current yield on these bonds is 9.5 percent. How many years do these bonds have left until they mature?
Bond P is a premium bond with an 8.2 percent coupon, a YTM of 6.95 percent, and 15 years to maturity Bond D is a discount bond with an 8.2 percent coupon, a YTM of 9.95 percent, and also 15 years to maturity. If interest rates remain unchanged, what do you expect the price of these bonds to be 1 year from now? In 5 years? In 10 years? In 14 years? In 15 years? (Input all amounts as positive values. Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.) Bond P Bond D 1 year 5 years 10 years 14 years 15 yearsExplanation / Answer
Since, there are multiple questions with multiple parts, the first 2 questions have been answered.
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Question 1)
Part A)
The rate of return (YTM) can be calculated with the use of Rate function/formula of EXCEL/Financial Calculator. The function/formula for Rate is Rate(Nper,PMT-PV,FV) where Nper = Period, PMT = Coupon Payment, PV = Current Bond Price and FV = Face Value of Bonds.
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Here, Nper = 12, PMT = 1,000*7.6% = $76, PV = $1,070 and FV = $1,000
Using these values in the above function/formula for Rate, we get,
Rate of Return (YTM) = Rate(12,76,-1070,1000) = 6.73%
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Part B)
The price of the bond can be calculated with the use of Present Value (PV) function/formula of EXCEL/Financial Calculator. The function/formula for PV is PV(Rate,Nper,PMT,FV) where Rate = YTM, Nper = Period, PMT = Coupon Payment and FV = Face Value of Bonds.
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Here, Rate = 6.73% + 2% = 8.73%, Nper = 10, PMT = 1,000*7.6% = $76 and FV = $1,000
Using these values in the above function/formula for PV, we get,
Bond Price = PV(8.73%,10,76,1000) = $926.61
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Question 2)
The rate of return (YTM) can be calculated with the use of Rate function/formula of EXCEL/Financial Calculator. The function/formula for Rate is Rate(Nper,PMT-PV,FV) where Nper = Period, PMT = Coupon Payment, PV = Current Bond Price and FV = Face Value of Bonds.
_______
Here, Nper = 10, PMT = 1,000*5.6% = $56, PV = $1,057.70 and FV = $1,000
Using these values in the above function/formula for Rate, we get,
YTM = Rate(10,56,-1057.70,1000) = 4.86%
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The duration is calculated with the use of following table:
Period (A) Cash Flow (B) A*B Present Value of Cash Flow (A*B)/(1+ 4.86%)^Year 1 56 56 53.40 2 56 112 101.86 3 56 168 145.71 4 56 224 185.27 5 56 280 220.86 6 56 336 252.74 7 56 392 281.20 8 56 448 306.48 9 56 504 328.81 10 1,056 10,560 6,570.00 Total (C) 8,446.33 Current Bond Price (D) 1,057.7 Macaulay Duration (C/D) 7.99 or 8.0 YearsRelated Questions
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