As a bond fund manager, you are considering corporate bonds issued by Super Buy (SB). Each SB bond is a 4-year bondwith a par value of $1 million. Its interest payments are based on the following schedule: $50,000 in year 1, $60,000 in years2, $70,000 in year 3, and $80,000 in year 4. You estimate SB's current interest rate is 6%. What is the estimated new bondprice using the duration model if the YTM increases by 100 basis points?OA. $1.0149 millionOB. $1.0496 millionOC.$0.9802 millionOD. $0.9795 million

Price of the bond is the present value of cash flow from the bond and present value of par value of…

As a bond fund manager, you are considering corporate bonds issued by Super Buy (SB). Each SB bond is a 4-year bona with a par value of $1 million. Its interest payments are based on the following schedule: $50,000 in year 1, $60,000 in year 2, $70,000 in year 3, and $80,000 in year 4. You estimate SB's current interest rate is 6%. What is the estimated new bond price using the duration model if the YTM increases by 100 basis points? OA. $1.0149 million OB. $1.0496 million OC. $0.9802 million D. $0.9795 million

As a bond fund manager, you are considering corporate bonds issued by Super Buy (SB). Each SB bond is a 4-year bona with a par value of $1 million. Its interest payments are based on the following schedule: $50,000 in year 1, $60,000 in year 2, $70,000 in year 3, and $80,000 in year 4. You estimate SB's current interest rate is 6%. What is the estimated new bond price using the duration model if the YTM increases by 100 basis points? OA. $1.0149 million OB. $1.0496 million OC. $0.9802 million D. $0.9795 million

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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As a bond fund manager, you are considering corporate bonds issued by Super Buy (SB). Each SB bond is a 4-year bond with a par value of $1 million. Its interest payments are based on the following schedule: $50,000 in year 1, $60,000 in year 2, $70,000 in year 3, and $80,000 in year 4. You estimate SB's current interest rate is 6%. What is the actual bond price change if the YTM increases by 100 basis points? OA.-3.49% OB.3.42% O C.3.49% O D.-3.42%
Calculate Bond Interest Rates. Fill in the correct answers. Please show your work A municipal bond that matures in one year has a $5,000 face value and is currently at an interest rate of 11.11%. The initial price for this bond is $______ Suppose that inflation is exactly 1.00%. The real interest rate for the bond is _____.%
As a bond fund manager, you are considering 10-year corporate bonds issued by Mellon Bank (MB). Each MB bond has a $1,000 par value with 8% annual coupon rate. The coupons are paid semi-annually. The estimated rate of return on MB bond is 10%. What is the price of the bond? • A. $831.31 • B. $1,010.29 • C. $875.38 • D. $946.32 You purchase a 5-year corporate bond. The coupon rate of the bond is 6%, paid annually, and its par value is $1,000. The YTM is 4%. If you sell the bond one year later, what is your holding period return? • A. 3.5% • B. 0.5% • C. 1.7% • D. 4.0%
Composition Fitness wants to raise lots of capital. They decide to raise money via issuing a bond on January 1, 2020. We know the following: Face Value: $250,000Contract (Coupon) Rate 6.5%Effective Rate: 6%Life: 5-YearsSemiannual PaymentsPresent Value of the Bond: 255,333. Is this Bond issued at a Premium or a Discount? What is the Journal Entry Required when the Bond is First Issued? Calculate the CASH AMOUNT of the Interest Payments each time a payment is made and the INTEREST EXPENSE we would record each payment. What is the carrying value of the bond on December 31, 2022?
The Pharoah Department of Transportation has issued 25-year bonds that make semiannual coupon payments at a rate of 10.425 percent. The current market rate for similar securities is 10.30 percent. Assume that the face value of the bond is $1,000. Excel Template (Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy reference to the values you've been given here, and be sure to update any values that may have been pre-entered in the template based on the textbook version of the problem.) Problem 8.29 a-d (Excel Video)(a) Your answer is incorrect. What is the current market value of one of these bonds? (Round answer to 2 decimal places, e.g. 15.25.) Current market value $
The Pharoah Department of Transportation has issued 25-year bonds that make semiannual coupon payments at a rate of 10.425 percent. The current market rate for similar securities is 10.30 percent. Assume that the face value of the bond is $1,000. Excel Template (Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy reference to the values you've been given here, and be sure to update any values that may have been pre-entered in the template based on the textbook version of the problem.) Problem 8.29 a-d (Excel Video)(a) ✓ Your answer is correct. What is the current market value of one of these bonds? (Round answer to 2 decimal places, e.g. 15.25.) Current market value $ eTextbook and Media Using multiple attempts will impact your score. 50% score reduction after attempt 2 Problem 8.29 a-d (Excel Video)(b) ✓ Your answer…
San Miguel Company's 18-year, $1,000 par value bonds pay 6.5 percent interest annually. The market price of the bond is $1,105, and your required rate of return is 8.5 percent. a. Compute the bond's expected rate of return. b. Determine the value of the bond to you given your required rate or return. c. Should you purchase the bond? Why or why not? (*You must show your calculation process as well.)
Your company is planning to issue new bonds soon. Your boss gives you the following informationand asks you to calculate the interest rate at which to issue the bonds. Given this information, whatinterest rate do you recommend? Expected Inflation Rate: 3% Interest rate of similar corporations' (AAA rated) 30-year bonds: 6.5% Interest rate of 30 - Year Treasury Bonds: 5.38% Interest rate of 3 -month treasury bills: 4.89% Liquidity - risk premium: 0.03 Instruction: Type ONLY your numericalanswer in the unit of dollars, NO $ sign, NO comma, and round to two decimal places. E.g., if youranswer is $7, 001.56, should type ONLY the number 7001.56, NEITHER 7,001.6, $7001.6, $7,001.6,NOR 7002. Otherwise, Blackboard will treat it as a wrong answer.
The Wildhorse Department of Transportation has issued 25-year bonds that make semiannual coupon payments at a rate of 10.375 percent. The current market rate for similar securities is 10.50 percent. Assume that the face value of the bond is $1.000. Excel Template (Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may have different values. When using this template, copy the problem statement from this screen for easy reference to the values you've been given here, and be sure to update any values that may have been pre-entered in the template based on the textbook version of the problem.) Problem 8.29 a-d (Excel Video)(a) What is the current market value of one of these bonds? (Round answer to 2 decimal places, eg. 15.25) Current market value
You are interested in purchasing two bonds. Bond A: 15-year $1,000,000 bond, redeemable at 102.5, and paying semi-annual coupons at i (2) = 4%. It is bought to yield i (2) = 5%. Bond B: 15-year, $1,000,000 bond, redeemable at 102.5 and paying semi-annual coupons at i (2) = 6.5%, bought to yield i (2) = 5%. Set up a bond amortization/accumulation schedule for each bond. Graph the values in the book value column for each bond (on the same graph). Please use the excel and show the formula. Thank you so much.
Madman Fitness wants to raise lots of capital. They decide to raise money via issuing a bond on January 1, 2020. We know the following: Face Value: $250,000Contract (Coupon) Rate 6.5%Effective Rate: 6%Life: 5-YearsSemiannual Payments Present Value of the Bond: 255,333. Is this Bond issued at a Premium or a Discount? What is the Journal Entry Required when the Bond is First Issued? Calculate the CASH AMOUNT of the Interest Payments each time a payment is made and the INTEREST EXPENSE we would record each payment. What is the carrying value of the bond on December 31, 2022?
Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are trading at well below par value. He has his eye on a bond issued by the Leisure Time Corporation. The $1,000 par value bond pays 4 percent annual interest and has 18 years remaining to maturity. The current yield to maturity on similar bonds is 12 percent. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. What is the current price of the bonds? (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.) Current price of the bond b. By what percent will the price of the bonds increase between now and maturity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.) Price increases by

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