1.A three-year bond with par-value $1,000 making annual coupon payments of $106 is priced at $1,000....

1.A three-year bond with par-value $1,000 making annual coupon payments of $106 is priced at $1,000. At the end of the first year, the interest rate turns out to be 8.6%. The investor re-invest the bond's coupon payments at 8.6%, What is the investor's, realized compound yield to maturity?

2.An investment pays out $180 at the end of each December for 3 years. An investor wants to buy the investment at the end of April, before the next $180 payment. The investments appropriate discount rate is 6.3%? What is the value of the investment, on the morning of January 1st for the coming year?

3.An investment pays out $180 at the end of each December for 10 years. An investor wants to buy the investment at the end of April, before the next $180 payment. The investment's appropriate discount rate is 6.3%? What is the value of the investment today (April)?

Solutions

Expert Solution

1.
=((106/8.6%*((1+8.6%)^3-1)+1000)/1000)^(1/3)-1=10.4152890066314%

2.
=180/1.063+180/1.063^2+180/1.063^3=478.483992942848

3.
=180/(1+6.3%)^(8/12)+180/(1+6.3%)^(20/12)+180/(1+6.3%)^(32/12)=488.328234229831

jeff jeffy answered 2 years ago

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