Part 1: A)What is the price of a bond that pays $100 in annual interest with
Question:
A)What is the price of a bond that pays $100 in annual interest with a $1,000 par value. It matures in 5 years and your required rate of return is
a.12 percent
b.10 percent
c.8 percent
B) How does the bond in part A) change if we change our maturity to 10 years and the required return is
a.12 percent
b.10 percent
c.8 percent
C)How does the bond in part A) change if we change our maturity to 20 years and the required return is
a.12 percent
b.10 percent
c.8 percent
Part 2:
Now assume you have the bond from part A) above, but you want to figure out the yield to maturity, what is the yield to maturity implied by each of these prices?
i.$600
ii.$800
iii.$1000
iv.$1,200
v.$1,400
Part 3:
1) If you purchased the bond in Part 1 b) a ($100 coupon, $1000 FV, 10 years to maturity, 12% YTM at time of purchase) and one year later, you sold this same bond when the market rate for this bond had declined to 11%.What would be your rate of return for the year?
2)If you purchased the bond in Part 1 b) a ($100 coupon, $1000 FV, 10 years to maturity, 12% YTM at time of purchase) and five years later, you sold this same bond when the market rate for this bond had increased to 14%.What would be your annual rate of return for the year?
Part 4:
How would the price of a 5 year zero coupon bond be calculated if the required market return on these bonds is 12%?
Foundations Of Finance
ISBN: 9780134083285
9th Edition
Authors: Arthur J. Keown, John H. Martin, J. William Petty