(6 marks) (c) A bond issued a year ago has 4 years remaining to maturity, coupon...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
(6 marks) (c) A bond issued a year ago has 4 years remaining to maturity, coupon rate of 4% and a par value of $1,000. The required rate of return for bonds with similar risk currently is 5.00%. (i) Calculate the bond's price today, assuming it is an annual coupon-paying bond. (2 marks) (ii) Now assume that the bond is a zero-coupon bond. Calculate the price for this bond in this case. (2 marks) (iii) Explain why the Macaulay duration of a zero-coupon bond is equal to its maturity. (2 marks) (d) Define Macaulay duration and modified duration and explain the differences between them. (4 marks) (e) Calculate the Macaulay duration of the coupon paying bond described in part (C). (3 marks) (f) Calculate the change in the price of the coupon paying bond described in part (c) if the required return increases to 6%. (2 marks) (6 marks) (c) A bond issued a year ago has 4 years remaining to maturity, coupon rate of 4% and a par value of $1,000. The required rate of return for bonds with similar risk currently is 5.00%. (i) Calculate the bond's price today, assuming it is an annual coupon-paying bond. (2 marks) (ii) Now assume that the bond is a zero-coupon bond. Calculate the price for this bond in this case. (2 marks) (iii) Explain why the Macaulay duration of a zero-coupon bond is equal to its maturity. (2 marks) (d) Define Macaulay duration and modified duration and explain the differences between them. (4 marks) (e) Calculate the Macaulay duration of the coupon paying bond described in part (C). (3 marks) (f) Calculate the change in the price of the coupon paying bond described in part (c) if the required return increases to 6%. (2 marks)
Expert Answer:
Answer rating: 100% (QA)
ci To calculate the bonds price today we need to use the present value formula PV Cr 1 11rn M1rn where PV is the present value of the bond C is the an... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these finance questions
-
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
Determine whether each function is one-to-one. If it is, find the inverse. f(x) = 4x - 1
-
A double-pane window consists of two 3-mm thick layers of glass separated by a 12-mm wide stagnant air space. For specified indoors and outdoors temperatures, the rate of heat loss through the window...
-
Determine the CO and CS bond lengths in OCS from the rotational constants B(16Ol2C32S) = 6081.5 MHz, B(16012C34S) = 5932.8 MHz.
-
The following is the adjusted trial balance of Qwik Care Clinic, Inc., for December 31,2010. Requirement 1. Journalize the closing entries at December 31. Qwik Care Clinic, Inc. Adjusted Trial...
-
Calculating Annuity Values you are serving on a jury. A plaintiff is suing the city for injuries sustained after a freak street sweeper accident. In the trial, doctors testified that it will be five...
-
The list price of an item is $ 8 7 . 6 2 . The supplier is offering a series trade discount of 8 / 1 9 . Use complements to find the net cost. ( Round to the nearest cent as needed. )
-
The High-Flying Growth Company (HFGC) has been growing very rapidly in recent years, making its shareholders rich in the process. The average annual rate of return on the stock in the last few years...
-
3. Let us consider a problem where given an arbitrary graph G = (V, E), the question is if a subset CCV of k = |C| vertices exists such that it forms a "double vertex cover", i.e., the requirement is...
-
There are 52 weeks in a year. How much does it cost to keep one adult for one year?
-
Watch the following Ted Talk: Robert Neuwirth: The power of the informal economy (can be found on YouTube) What makes the informal economy possible? (Consider both institutions and resources .)...
-
Simplify. 10p q 7mn 2 42 5p q 28n 5
-
What is required prior to a case being sent to a dental laboratory? Give examples
-
Estimte the integral 0 xe dx
-
Paul, the IT Director in charge of five IT support staff who provide the first line of support to a company of 150 people, received a number complaints from other departments about the performance of...
-
Write out the formula for the total costs of carrying and ordering inventory, and then use the formula to derive the EOQ model. Andria Mullins, financial manager of Webster Electronics, has been...
-
Jason and Mary Wells, friends of yours, were married on December 30, 2012. They know you are studying taxes and have come to you with a question concerning their filing status. Jason and Mary would...
-
On February 2, 2012, Alexandra purchases a personal computer for her home. The computer cost $3,000. Alexandra uses the computer 80 percent of the time in her accounting business, 10 percent of the...
-
For each of the following cases, indicate the filing status for the taxpayer(s) for 2012 using the following legend: A - Single B - Married, filing a joint return C - Married, filing separate returns...
-
What is the difference between a primary beneficiary relationship and a foreseen party relationship?
-
What is the difference between a privity relationship and a primary beneficiary relationship?
-
What is the difference between a foreseen party relationship and a foreseeable party relationship?
Study smarter with the SolutionInn App