Ray Co.’s bonds, maturing in 3 years, pay 8 percent interest on a $1,000 face value. Interest is paid once per year. If your required rate of return is 8 percent, what is the value of the bond? Now assume that the required rate of return increased to 9%. Would you recommend investors to buy the bond? What can you conclude about the relationship between bond prices and interest rates? Assume that the modified duration of this bond is 2.60 years. If the market yield changes by 2%, how much change will there be in the bond's price in %
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Ray Co.’s bonds, maturing in 3 years, pay 8 percent interest on a $1,000 face value. Interest is paid once per year. If your required
Now assume that the required rate of return increased to 9%. Would you recommend investors to buy the bond? What can you conclude about the relationship between
Assume that the modified duration of this bond is 2.60 years. If the market yield changes by 2%, how much change will there be in the bond's price in %
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- Consider a bond with a face value of $1,000. The coupon is paid semiannually and the market interest rate (effective annual interest rate) is 8 percent. How much would you pay for the bond if a. the coupon rate is 6 percent and the remaining time to maturity is 10 years?Consider a bond (with par value = $1,000) paying a coupon rate of 10% per year semiannually when the market interest rate is only 4% per half-year. The bond has three years until maturity. Required: a. Find the bond's price today and six months from now after the next coupon is paid. b. What is the total (6-month) rate of return on the bond? Complete this question by entering your answers in the tabs below. Required A Required B Find the bond's price today and six months from now after the next coupon is paid. Note: Round your answers to 2 decimal places. Current price Price after six months $ $ 1,052.42 1,044.52You will be paying $9,500 a year in tuition expenses at the end of the next two years. Bonds currently yield 8%. a. What is the present value and duration of your obligation? (Do not round intermediate calculations. Round "Present value" to 2 decimal places and "Duration" to 4 decimal places.) Present value Duration b. What maturity zero-coupon bond would immunize your obligation? (Do not round intermediate calculations. Round "Duration" to 4 decimal places and "Face value" to 2 decimal places.) Duration Face value years Not position years -C. ppose you buy a zero-coupon bond with value and duration eq your oblig Now suppose that imme increase to 9%. What happens to your net position, that is, to the difference between the value of the bond and that of your tuition obligation? (Do not round intermediate calculations. Input the amount as a positive value. Round your answer to 2 decimal places.) in value by
- A Sunfish bond is paying 10 percent interest for 20 years on a semiannual basis. Assume interest rates in the market (yield to maturity) increase from 6 percent to 14 percent. (Use a Financial calculator to arrive at the answers. Do not round intermediate calculations. Enter all amounts as positive value. Round the final answers to 2 decimal places.) a. What is the bond price at 6 percent? Bond price $ b. What is the bond price at 14 percent? Bond price $ c. What would be the percentage return on an investment bought when rates were 6 percent and sold when rates are 14 percent? Return on investment % (Click to select) profit loss (Type answer only)A 10-year government bond has face value of OR 200 and a coupon rate of 6% paid semiannually. Assume that the interest rate is equal to 8% per year. What is the bond’s price? What is the reason for the difference in price on an annual and semiannually basis? Discuss the role of financial managers.You will be paying $10,000 a year in tuition expenses at the end of the next two years. Bonds currently yield 8%.a. What is the present value and duration of your obligation?b. What maturity zero-coupon bond would immunize your obligation? c. Suppose you buy a zero-coupon bond with value and duration equal to your obligation. Now suppose that rates immediately increase to 9%. What happens to your net position, that is, to the difference between the value of the bond and that of your tuition obligation?d. What if rates fall immediately to 7%?
- You will be paying $8,600 a year In tultion expenses at the end of the next two years. Bonds currently yleld 7%. Q. What is the present value and duration of your obligation? b. What maturity zero-coupon bond would Immunize your obligation? c. Suppose you buy a zero-coupon bond with value and duration equal to your obligation. Now suppose that rates immediately Increase to 9%. What happens to your net position, that is, to the difference between the value of the bond and that of your tultion obligation? d. What if rates fall Immediately to 5% ? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D What is the present value and duration of your obligation? (Do not round intermediate calculations. Round "Present value" to 2 decimal places and "Duration" to 4 decimal places.) \table[[,,,],[Present value,,,,,],[Duration,,years,,,]]Solve by Formula. Three years ago, ABC Company issued 10-year bonds that pay 5% semiannually. a. If the bond currently sells for $1,045, what is the yield to maturity (YTM) on this bond? b. If you are expecting that the interest rate will drop in the near future and you want to gain profit by speculating on a bond, will you buy or sell this bond? Why?The Saleemi Corporation's $1,000 bonds pay 6 percent interest annually and have 11 years until maturity. You can purchase the bond for $1,155. a. What is the yield to maturity on this bond? b. Should you purchase the bond if the yield to maturity on a comparable-risk bond is 3 percent?
- Assume you will be paying $10,000 per year in tuition expenses at the end of each of the next two years. Bonds currently yield 8%. a) What is the present value and duration of your obligation? b) What maturity zero-coupon bond would immunize your obligation? c) Suppose you buy a zero-coupon bond with value and duration equal to that of your obligation. Now suppose that interest rates immediately increase to 9%. What happens to your net position, that is, to the difference between the value of the bond and that of your tuition obligation? d) What happens to your net position if rates instead fall to 7%?You will be paying $12,200 a year in tuition expenses at the end of the next two years. Bonds currently yield 9%. Required: a. What are the present value and duration of your obligation? (Do not round intermediate calculations. Round "Present value" to 2 decimal places and "Duration" to 4 decimal places.) b. What is the duration of a zero-coupon bond that would immunize your obligation and its future redemption value? (Do not round intermediate calculations. Round "Duration" to 4 decimal places and "Future redemption value" to 2 decimal places.) c. Suppose you buy a zero-coupon bond with value and duration equal to your obligation. Now suppose that rates immediately increase to 10%. What happens to your net position, that is, to the difference between the value of the bond and that of your tuition obligation? (Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places.) d. Suppose you buy a zero-coupon bond with value…A bond has the following features: Coupon rate of interest (paid annually): 6 percent Principal: $1,000 Term to maturity: 12 years What will the holder receive when the bond matures? Principal or All coupon payments? If the current rate of interest on comparable debt is 9 percent, what should be the price of this bond? Assume that the bond pays interest annually. Use Appendix B and Appendix D to answer the question. Round your answer to the nearest dollar. $ Would you expect the firm to call this bond? Why? -Yes or No, since the bond is selling for a discount or premium? If the bond has a sinking fund that requires the firm to set aside annually with a trustee sufficient funds to retire the entire issue at maturity, how much must the firm remit each year for twelve years if the funds earn 9 percent annually and there is $120 million outstanding? Use Appendix C to answer the question. Round your answer to the nearest dollar. $