the coupon rate? 7. Carol Chastain purchases a 1-year discount bond with a $1,00
ID: 2810762 • Letter: T
Question
the coupon rate? 7. Carol Chastain purchases a 1-year discount bond with a $1,000 face value for $862.07. What is the yield of the bond? 8. David Hoffiman purchases a $1,000 20-year bond with an 8 percent coupon rate (annual payments). Yields on compara- What is the expected percen c. If interest rates are expe points, what is the expecte What is the expected perce ble bonds are 10 percent. David expects that, 2 years from now, yields on comparable bonds will have declined to 9 per- 16. Explain the convexity of a cent. Find his expected yield, assuming the bond is sold under what circumstances is co 17. When reducing interest in 2 years. 1 000 4 year bond with an c matching superior to maturity
Explanation / Answer
1.
=(1000/862.07)-1=16.00%
2.
Purchase price=PV(10%,20,8%*1000,1000)=$829.73
Price now=PV(9%,18,8%*1000,1000)=$912.44
Yield:
=IRR(-829.73,8%*1000,8%*1000+912.44)
=14.29%
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