You purchased a zero coupon bond one year ago for $425.32. The market interest rate is now
Question:
You purchased a zero coupon bond one year ago for $425.32. The market interest rate is now 4.3 percent. If the bond had 20 years to maturity when you originally purchased it, what was your total return for the past year? Assume a par value of $1,000 and semiannual compounding.
Step by Step Answer:
To find the return on the zero coupon bond we first need to find the price of the b...View the full answer
Corporate Finance Core Principles And Applications
ISBN: 9781260571127
6th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
Related Video
Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.
Students also viewed these Business questions
-
You purchased a zero coupon bond one year ago for $109.83. The market interest rate is now 9 percent. If the bond had 25 years to maturity when you originally purchased it, what was your total return...
-
You purchased an annual interest coupon bond one year ago with 6 years remaining to maturity at the time of purchase. The coupon rate is 10% and face value is $1,000. At the time you purchased the...
-
You purchased a zero coupon bond one year ago for $385.27. The market interest rate is now 4.8 percent. If the bond had 20 years to maturity when you originally purchased it, what was your total...
-
Suppose there are three buyers of candy in a market: Tex, Dex, and Rex. The market demand and the individual demands of Tex, Dex, and Rex are shown on the next page. a. Fill in the table for the...
-
A widely used technique for estimating the length of time it takes workers to produce a product is the time study. In a time study, the task to be studied is divided into measurable parts, and each...
-
If the mass of the block at A is 20 kg, determine the mass of the block at B and at C for equilibrium. Also, determine the angles u and f. A D 3 m B E -4 m C 3 m
-
Explain medical staff organization and committee structure.
-
Acadian Inc. issues $1,000,000 of 7% bonds due in 10 years with interest payable at year-end. The current market rate of interest for bonds of similar risk is 8%. What amount will Acadian receive...
-
Sketch a graph of a function f(x) that satisfies all of the following conditions (you are aphing one function): lim f(x)=1 811B lim f(x)=2 014 f is discontinuous at x=0 lim f(x)= lim f(x) = +11x 1- 4...
-
Calculate the number of salespeople required to cover the market. in the present setup (use Table 2) [4 marks]b. with the proposed new setup (use Table 3) [4marks] Type of Shops Pan Shops Kirana...
-
A stock has had returns of 13.18 percent, 17.63 percent, 24.87 percent, 8.32 percent, and 13.41 percent over the past five years, respectively. What was the holding period return for the stock?
-
You bought a share of 2.8 percent preferred stock for $94.16 last year. The market price for your stock is now $96.20. The par value is $100. What is your total return for last year?
-
What is the formula to compute the predetermined overhead allocation rate?
-
Why is the material solution the most preferred approach to address long range precision fires within DOTMLPF-P?
-
according to the knformation for you found in the medical and health services managers section of the occupational outlook handbook by the us bureau of labor statistics, what is the median salary for...
-
Where was Enron incorporated?What type of revenues are reported using mark-to-market accounting?
-
On January 1, 2022, Illini Company borrowed $20,000 from a local bank by signing a two-month 12% note. Interest was payable at maturity on February 28, 2022. Based on the information provided, please...
-
Do you think it is reasonable for someone to support themselves financially with this wage? Consider the cost of common amenities/items like rent, utilities, and groceries.
-
Andy and Jean Crocket are involved in divorce proceedings. When discussing a property settlement, Andy told Jean that he should take over their investment in an apartment complex because she would be...
-
Evaluate each logarithm to four decimal places. log 0.257
-
On September 1, 2013, Susan Chao bought a motorcycle for $34,000. She paid $2,000 down and financed the balance with a five-year loan at an annual percentage rate of 7.2 percent, compounded monthly....
-
Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with a retirement income of $20,000 per month for 20 years, with the first...
-
Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with a retirement income of $20,000 per month for 20 years, with the first...
-
Sunland Corp. designs and builds custom harvesting equipment for logging companies across Canada. The company, which is publicly traded, has a May 31 year end. On February 18, 2024, Sunland signed a...
-
Kubin Company's relevant range of production is 18,000 to 22,000 units. When it produces and sells 20,000 units, its average costs per unit are as follows: Average Cost per Unit Fixed administrative...
-
The following balance sheet for the Los Gatos Corporation was prepared by a recently hired accountant. In reviewing the statement you notice several errors. LOS GATOS CORPORATION Balance Sheet At...
Study smarter with the SolutionInn App