Question
In: Finance
Pete plans to buy an 8 percent, $1,000 par bond that matures in three years and...
Pete plans to buy an 8 percent, $1,000 par bond that matures in three years and the interest is paid semiannually, and the bond’s YTM is 10 percent.
- Calculate the bond’s duration.
(b) Calculate the bond’s modified duration.
(c) Assuming the bond’s YTM declines from 10 percent to 9.5 percent, calculate the bond’s price change. Explain your answer.
(d) Explain how changes in YTM affects the bond’s market price risk and reinvestment risk.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Pete plans to buy an 8 percent, $1,000 par bond that matures in three years and...
Pete plans to buy an 8 percent, $1,000 par bond that matures in
three years and the interest is paid semiannually, and the bond’s
YTM is 10 percent.
Calculate the bond’s duration.
(b) Calculate the bond’s modified duration.
(c) Assuming the bond’s YTM declines from 10 percent to 9.5
percent, calculate the bond’s price change. Explain your
answer.
(d) Explain how changes in YTM affects the bond’s market price
risk and reinvestment risk.
Pete plans to buy an 8 percent, $1,000 par bond that matures in three years and...
Pete plans to buy an 8 percent, $1,000 par bond that matures in
three years and the interest is paid semiannually, and the bond’s
YTM is 10 percent.
Calculate the bond’s duration.
(b) Calculate the bond’s modified
duration.
(c) Assuming the bond’s YTM declines
from 10 percent to 9.5 percent, calculate the bond’s price change.
Explain your answer.
(d) Explain how changes in YTM affects
the bond’s market price risk and reinvestment risk.
(Bond valuation) A bond that matures in 8 years has a $1,000 par value. The annual...
(Bond valuation) A bond that matures in 8
years has a $1,000 par value. The annual coupon interest rate is 9
percent and the market's required yield to maturity on a
comparable-risk bond is 18 percent.
What would be the value of this bond if it paid interest
annually?
What would be the value of this bond if it paid interest
semiannually?
*Someone previously answered this with annually = $604.56 and
semiannually = $596.89 and the annual number is incorrect*
Calculate the Macaulay duration of a 9%, $1,000 par bond that matures in three years if...
Calculate the Macaulay duration of a 9%, $1,000 par bond that
matures in three years if the bond's YTM is 14% and interest is
paid semiannually. You may use Appendix C to answer the
questions.
A. Calculate this bond's modified duration. Do not round
intermediate calculations. Round your answer to two decimal
places.
B. Assuming the bond's YTM goes from 14% to 13.0%, calculate an
estimate of the price change. Do not round intermediate
calculations. Round your answer to three...
A bond matures in 8 years, Par value = $1,000, and coupon annual interest payment =...
A bond matures in 8 years, Par value =
$1,000, and coupon annual interest payment = $65. Yield to maturity
of this bond is 8.2% (yield, or annual return). What is the bond's
price?
a. $903.04
b. $925.26
c. $948.67
d. $972.84
A $1,000 par value bond matures in 8 years. It has a 7% coupon rate, with...
A $1,000 par value bond matures in 8 years. It has a 7% coupon
rate, with semi-annual interest payments. The yield (the rate at
which investors are using to calculate the price of the bond) is
8%. What is the fair market value of the bond?
A bond that matures in 8 years has a $1,000 par value. The annual coupon interest...
A bond that matures in 8 years has a $1,000 par value. The
annual coupon interest rate is 14 percent and the market's
required yield to maturity on a comparable-risk bond is 17
percent. What would be the value of this bond if it paid interest
annually? What would be the value of this bond if it paid interest
semiannually?
Kurt owns a convertible bond that matures in three years. The bond has an 8 percent...
Kurt owns a convertible bond that matures in three years. The
bond has an 8 percent coupon and pays interest semi-annually. The
face value of the bond is $1,000 and the conversion price is $25.
Similar bonds have a market return of 9.25 percent. The current
price of the stock is $26.50 per share. What is the minimum value
of the convertible bond? what is the minimum value of the option to
convert?
Mayfawny owns an 8 year bond with a par value of 1,000. The bond matures for...
Mayfawny owns an 8 year bond with a par value of 1,000. The bond
matures for par and pays semi-annual coupons at a rate of 6%
convertible semi-annually.
Calculate the Modified duration of this bond at an annual
effective interest rate of 9.2025%.
A company's 8% coupon rate, semiannual payment, $1,000 par value bond that matures in 30 years...
A company's 8% coupon rate, semiannual payment, $1,000 par value
bond that matures in 30 years sells at a price of $749.05. The
company's federal-plus-state tax rate is 40%. What is the firm's
after-tax component cost of debt for purposes of calculating the
WACC? (Hint: Base your answer on the nominal
rate.) Round your answer to two decimal places.
what is the answer? %
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