What is the total return for a 20-year zero-coupon bond that is offering a yield to...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
What is the total return for a 20-year zero-coupon bond that is offering a yield to maturity of 8% if the bond is held to maturity? 8. Relationship between Reinvestment Rate and YTM. Consider a 20-year bond paying 14% semi-annual coupons and selling at par. (a) Suppose that the coupons can be reinvested at a rate of 10%. What is the total return? (b) Now, suppose that the coupons can be reinvested at a rate of 18%, what is the total return? (c) Based on your answers to part (a) and part (b), discuss whether the following statement is true or false and explain why: "For a long-term high-yield coupon bond, that the total return from holding a bond to maturity will be closer to the reinvestment rate than the yield to maturity" What is the total return for a 20-year zero-coupon bond that is offering a yield to maturity of 8% if the bond is held to maturity? 8. Relationship between Reinvestment Rate and YTM. Consider a 20-year bond paying 14% semi-annual coupons and selling at par. (a) Suppose that the coupons can be reinvested at a rate of 10%. What is the total return? (b) Now, suppose that the coupons can be reinvested at a rate of 18%, what is the total return? (c) Based on your answers to part (a) and part (b), discuss whether the following statement is true or false and explain why: "For a long-term high-yield coupon bond, that the total return from holding a bond to maturity will be closer to the reinvestment rate than the yield to maturity"
Expert Answer:
Answer rating: 100% (QA)
Lets calculate the total return for the 20year zerocoupon bond A zerocoupon bond doesnt pay periodic ... View the full answer
Related Book For
Fundamentals of Financial Management
ISBN: 978-0324597707
12th edition
Authors: Eugene F. Brigham, Joel F. Houston
Posted Date:
Students also viewed these accounting questions
-
A data professional uses a spreadsheet to track the total purchases made by each member of the company's procurement department. What spreadsheet tool can they use to change how the cells appear when...
-
Choose the alternative the best answers the question. 1. Calculate the yield to worst on the following bond, which makes semi-annual coupon payment: Coupon rate = 6% Maturity = 30 years Par Value =...
-
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...
-
Stock W, X and Y have expected returns of 9.0%, 16.1% and 11.3% respectively. Based on this and the attached information, what is the expected return of your portfolio? Stock W X Y Number of Shares...
-
Estimate the coefficients a and b in the Dieterici equation of state from the critical constants of xenon. Calculate the pressure exerted by 1.0 mol Xe when it is confined to 1.0 dm3 at 25C.
-
Give the product of the reaction of pentanoic acid with each of the following reagents: (a) Sodium hydroxide (b) Sodium bicarbonate (c) Thionyl chloride (d) Phosphorus tribromide (e) Benzyl alcohol,...
-
A spare parts seller finds that 3 in every 100 parts sold is defective. Find the probability that (a) the first defective part is the eighth part sold, (b) the first defective part is the first,...
-
Use Worksheet 11.1 Linda Scales is a young career woman whos now employed as the managing editor of a well-known business journal. Although she thoroughly enjoys her job and the people she works...
-
Financial health, from an organizational standpoint, refers to the overall state of a company's financial well-being and its ability to effectively manage its financial resources to meet its...
-
Sebastian Trains Co (ST) is a UK based rail operating company which holds three UK rail franchises. The franchises allow ST to run trains on the rail network in a particular geographical area within...
-
Marcus did not file his 2022 California tax return by the original due date of April 18, 2023. He took advantage of the automatic extension to October 16, 2023. On September 5, 2023, he filed his tax...
-
What is one fundamental right under the U.S. Constitution, the Bill of Rights, or a U.S. Supreme Court case. What does it mean? Where can it be found? What are the limitations of that right? Please...
-
If acquisitions are supposed to create value why do 70% of reportedly fail?
-
Think about a job you've worked in or a business you've patronized that had poor operations, organization, or teamwork in some way.It can be a disorganized restaurant kitchen, a bad filing system, an...
-
What is the relationship between law and ethics? Give an example of a legal rule and an example of an ethical rule.
-
Is it acceptable for one contracting party to encourage another not to fulfill his/her contracting duties?
-
Jansen Manufacturing is evaluating the purchase of a new machine for a special project. The machine. can be purchased for $550,000. Shipping and installation will be an additional 5% of the purchase...
-
suppose a nickel-contaminated soil 15 cm deep contained 800 mg/kg Ni, Vegetation was planted to remove the nickel by phytoremediation. The above-ground plant parts average 1% Ni on a dry-weight bas...
-
Harrison estimates that if it acquires Van Buren, the year-end dividend will remain at $2.00 a share, but synergies will enable the dividend to grow at a constant rate of 7% a year (instead of the...
-
Digital Inc. is considering production of a new cell phone. The project will require an investment of $20 million. If the phone is well-received, the project will produce cash flows of $10 million a...
-
Robert Balik and Carol Kiefer are senior vice presidents of the Mutual of Chicago Insurance Company. They are codirectors of the companys pension fund management division, with Balik having...
-
Given forecast errors of 3, 2, -2, and 9, what is the tracking signal?
-
Given a forecast of 2,105 and an actual outcome of 1,980, what is the error in the forecast? What is the percent error?
-
Given an actual demand of 34 this period, a predicted value of 45 this period, and an alpha of 0.2, what would be the simple exponential smoothing forecast for the next period?
Study smarter with the SolutionInn App