Two 20-year maturity mortgage-backed bonds are issued. The first bond has a par value of $10,000...

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Two 20-year maturity mortgage-backed bonds are issued. The first bond has a par value of $10,000 and promises to pay a 10.5 percent annual coupon, while the second is a zero coupon bond that promises to pay $10,000 (par) after 20 years, with interest accruing at 10.0 percent. At issue, bond market investors require a 12.0 percent interest rate on both bonds. Required: a. What is the initial price on each bond? b. Now assume that both bonds promise interest at 10.5 percent, compounded semiannually. What will be the initial price for each bond? c. If market interest rates fall to 9.5 percent at the end of the fifth year, what will be the value of each bond, assuming annual paymen as in (a) (state both as a percentage of par value and actual dollar value)? Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the initial price on each bond? (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Bond 1 Bond 2 Initial price $ 8,879.58 $ 1,486.44 < Required A Required B > Two 20-year maturity mortgage-backed bonds are issued. The first bond has a par value of $10,000 and promises to pay a 10.5 percent annual coupon, while the second is a zero coupon bond that promises to pay $10,000 (par) after 20 years, with interest accruing at 10.0 percent. At issue, bond market investors require a 12.0 percent interest rate on both bonds. Required: a. What is the initial price on each bond? b. Now assume that both bonds promise interest at 10.5 percent, compounded semiannually. What will be the initial price for each bond? c. If market interest rates fall to 9.5 percent at the end of the fifth year, what will be the value of each bond, assuming annual payments as in (a) (state both as a percentage of par value and actual dollar value)? Complete this question by entering your answers in the tabs below. Required A Required B Required C If market interest rates fall to 9.5 percent at the end of the fifth year, what will be the value of each bond, assuming annual payments as in (a) (state both as a percentage of par value and actual dollar value)? (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Value of bond in dollars Value of the bond in % of par Bond 1 Bond 2 % % Two 20-year maturity mortgage-backed bonds are issued. The first bond has a par value of $10,000 and promises to pay a 10.5 percent annual coupon, while the second is a zero coupon bond that promises to pay $10,000 (par) after 20 years, with interest accruing at 10.0 percent. At issue, bond market investors require a 12.0 percent interest rate on both bonds. Required: a. What is the initial price on each bond? b. Now assume that both bonds promise interest at 10.5 percent, compounded semiannually. What will be the initial price for each bond? c. If market interest rates fall to 9.5 percent at the end of the fifth year, what will be the value of each bond, assuming annual paymen as in (a) (state both as a percentage of par value and actual dollar value)? Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required B Required C What is the initial price on each bond? (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Bond 1 Bond 2 Initial price $ 8,879.58 $ 1,486.44 < Required A Required B > Two 20-year maturity mortgage-backed bonds are issued. The first bond has a par value of $10,000 and promises to pay a 10.5 percent annual coupon, while the second is a zero coupon bond that promises to pay $10,000 (par) after 20 years, with interest accruing at 10.0 percent. At issue, bond market investors require a 12.0 percent interest rate on both bonds. Required: a. What is the initial price on each bond? b. Now assume that both bonds promise interest at 10.5 percent, compounded semiannually. What will be the initial price for each bond? c. If market interest rates fall to 9.5 percent at the end of the fifth year, what will be the value of each bond, assuming annual payments as in (a) (state both as a percentage of par value and actual dollar value)? Complete this question by entering your answers in the tabs below. Required A Required B Required C If market interest rates fall to 9.5 percent at the end of the fifth year, what will be the value of each bond, assuming annual payments as in (a) (state both as a percentage of par value and actual dollar value)? (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Value of bond in dollars Value of the bond in % of par Bond 1 Bond 2 % %

Answer rating: 100% (QA)

a The initial price of Bond 1 can be calculated using the formula for the present value of a bond Bo... View the full answer