Question: A 30-year, $1,000 par value zero-coupon bond provides a yield of 11 percent. a. Compute the current price of the zero-coupon bond. (Hint: Simply take

A 30-year, $1,000 par value zero-coupon bond provides a yield of 11 percent.
a. Compute the current price of the zero-coupon bond. (Hint: Simply take the present value of the ending $1,000 payment).
b. What is the duration of the bond?
c. Does the bond have a longer or shorter duration than a 50-year, 8 percent coupon rate bond, where the duration on the latter bond is based on a 12 percent market rate of interest (consult Table 18–6 ).
d. Assume you were going to put the zero-coupon bond(s) from part a in a nontaxable individual retirement account. If you wish to have $30,000 after 30 years, how much would you need to invest today?
e. If a $1,000 par value zero-coupon rate bond had a 40-year maturity and provided a yield of 13 percent, what would be the current price of the zero-coupon bond?

Step by Step Solution

★★★★★

3.32 Rating (167 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a Discount back 1000 for 30 years at 11 Appendix C b For a zerocoupon rate ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

538-B-A-I (6916).docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!

Assume you buy a 20-year, $1,000 par value zero-coupon bond that provides a 10 percent yield. Almost immediately after you buy the bond, yields go down to 8 percent. a. What will be your gain on the...

In discussing return potential in foreign markets, indicate why a number of foreign countries may have higher return possibilities than the United States.

Assume you invest in the German equity market and have a 20 percent return (quoted in euros). a. If during this period the euro appreciated by 10 percent against the dollar, what would be your actual...

The question is extended on this website...

please answer all these multiple chioce questions in the pictures. ASAP!!! Assume the below information to answer the following question(s). Company Ford (F) Coupon 11.0 Maturity July 31, 2014 EST...

or answer the question 1) Which of the following statements is TRUE regarding STOCK PRICES? A) Ceteris paribus, riskier stocks would have higher prices A dealer's bid price would always be above the...

excel work process 1. Firm A's outstanding bonds have a $1,000 face value, and they mature in 12 years. Their yield to maturity is 8.56%, they pay interest semiannually, and they sell at a price of...

Problem 4: "Options Part 1: A stock at beginning of the year, is selling for $24. The same stock, at end of year, is expected to sell at $30 if economy experiences a boom and only at $20 if economy...

Need help with all questions. Please. Financial ratio analysis (25 points) Dino's 2014 and 2015 balance sheets and income statements, together with projections for 2016, are given in Tables 1 and 2....

Page 1 FIN 610 Team Project Title: Financial Analysis Tasks Responding to the Controller Introduction: You are a financial analyst at the Stirm Windows Company. After the Monday morning staff meeting...

Identify the isoprene units in Î²-carotene (see Figure 26.6). Which carbons are joined by a tail-to-tail link between isoprene units? FIGURE 26.6 Some representative terpenes and related...

Nonparametric tests are also called distributionfree tests. However, the normal distributions are used in the inference-making procedures. a. To what does the distribution-free term apply? (The...

Predetermined Overhead Rate, Overhead Application At the beginning of the year, Ilberg Company estimated the following costs: Overhead $416,000 Direct labor cost 520,000 Ilberg uses normal costing...

20. What is the difference between interfile and intrafile clustering? Why are they used?

Using net present value (NPV) analysis, a manager can select those projects that will maximize the present value of future cash flows. NPV analysis is a powerful tool; however, surveys of current...

California Company is trying to determine the relative profitability of two alternative color laser printers. Printer A requires an initial cash outlay of $6,000 and has a net present value of $500....

Kade Corporation is considering the purchase of a new piece of equipment. The equipment will cost $135,000 and is expected to have a useful life of five years. The gross cash flow savings is...

U Malagerial Accounting, 8e Help System Announcements Return to Blackboard Matching Question 199 Match the following statements to the appropriate terms. Used to apply manufacturing overhead to jobs....

Ratio of Liabilities to Stockholders' Equity and Times Interest Earned Hasbro, Inc. and Mattel, Inc. are the two largest toy companies in North America. Condensed liabilities and stockholders' equity...

Harold's Helpers provides locksmith services. One type of service call is to evaluate private residences for security concerns and make recommendations for a safety plan. Use the data below to...