Question

In: Finance

An investor purchases a bond in 2005 for $1,150 with 10 years to maturity.

An investor purchases a bond in 2005 for $1,150 with 10 years to maturity. The par value is $1,000. The annual coupon rate is 12 percent and coupon payments are made semi-annually. Assuming semi-annual compounding, what is the annual yield-to-maturity on the bond?

Group of answer choices

a. 2.24 %

b. 4.82%

c. 6.06 %

d. 9.63 %

Expert Solution

Face Value of Bond = $1000

Semi-annual coupon payments = $1000*12%*1/2

= $60

No of coupon Payments = No of years to maturity*2

=10 years*2

= 20

Current Price = $1150

Calculating Semi-annual Yield to maturity(YTM) using Excel rate function:-

Semi-annual YTM = 4.8152%

Annual YTM = 4.8152%*2

Annual YTM = 9.63%

So, the annual yield-to-maturity on the bond is 9.63%

Option D

jeff jeffy answered 2 years ago

An investor buys a bond with the following characteristics: Maturity - 10 years Coupon - 4.5%,...

An investor buys a bond with the following characteristics: Maturity - 10 years Coupon - 4.5%, paid once per year Nominal Value - £100 The yield to maturity at the time of purchase is 8.50%. The investor sells the bond immediately after the sixth coupon payment, when the yield to maturity rises to 9.50%. c.Use the modified Macaulay duration to calculate what the price of the above bond would have been immediately after purchase, if the yield to maturity had...

An investor buys a 3.8% annual payment bond with 8 years to maturity. The bond is...

An investor buys a 3.8% annual payment bond with 8 years to maturity. The bond is priced at a yield-to-maturity of 5.6%. What is the bond’s Macaulay duration?

Question Five You purchase a $1,000 bond maturing in 10 years, and pay $1,150 for the...

Question Five You purchase a $1,000 bond maturing in 10 years, and pay $1,150 for the bond. The bond pays annual interest at 5%. What is the current yield? What is the yield to maturity? Using the information in b, you sell the bond for $1,250 at the end of year 2, what is the rate of return of the bond? Assume the payments are reinvested at a rate of 3% Rate of return = Int + Capital Gain / Purchase Price What...

a) A bond of 10 years maturity is left with 8 years to maturity today. Its...

a) A bond of 10 years maturity is left with 8 years to maturity today. Its coupon rate is 10%, paying annual coupon with par value of $1,000. What is the price of the bond today if the yield to maturity is 8%? Is it a premium bond or discount bond? b) Recently, a 30-year corporate bond issued by Liz Co. has been downgraded by a credit rating agency from AAA to B. Other things being constant, what would you...

A bond with 10 years to maturity has a face value of $1,000. The bond pays an...

A bond with 10 years to maturity has a face value of $1,000. The bond pays an 8 percent semiannual coupon, and the bond has a 10.8 percent nominal yield to maturity. What is the price of the bond today?

1. A bond with 10 years to maturity has a face value of $1,000. The bond...

1. A bond with 10 years to maturity has a face value of $1,000. The bond can be called in four years for $1050. The bond pays an 6 percent semiannual coupon, and the bond has a 3.3 percent nominal yield to maturity. What is the price of the bond today assuming that it will be called? 2. A corporate bond that matures in 12 years pays a 9 percent annual coupon, has a face value of $1,000, and a current...

A 10% semiannual bond was issued in June of 2014 with 10 years to maturity. You...

A 10% semiannual bond was issued in June of 2014 with 10 years to maturity. You purchased the bond when it was issued. Immediately after the purchase, the TYM changed to some new level X and remained at this new level for 5 years. In June of 2019 you received your coupon, the interest rates changed again to a new value of Y and you sold your bond for 103 (all of this happened in a single day). a. If...

Consider a bond with semiannual payments with 10 years to maturity, coupon of 10%, 8% as...

Consider a bond with semiannual payments with 10 years to maturity, coupon of 10%, 8% as Yield to Maturity (YTM),and face value of 1000, a. Find the price of the bond at t=0. b. Interest rates drop by 1% after 1 year. Find the new Price of the bond. c. Interest rates drop to 0% after two years from time 0. Find the new price. d. Interest rates turn negative to -5% after 3 years from t= 0. Find the new...

A bond price is $1,135.90. The maturity is 10 years. The coupon rate is 10%. Payments...

A bond price is $1,135.90. The maturity is 10 years. The coupon rate is 10%. Payments are semi-annual. Face value is $1,000. Solve for the YTM. Input your answer as whole percentage with two decimal places (x.xx), so 9.5% is input as 9.50. Hint: first solve for the RATE by adjusting for semiannual again, then multiply this result by 2 to bring it back to annual. The PMT and FV have the same sign since they are inflows to the...

Consider Bond C – a 4% coupon bond that has 10 years to maturity. It makes...

Consider Bond C – a 4% coupon bond that has 10 years to maturity. It makes semi-annual payments and has a YTM of 7%. If interest rates suddenly drop by 2%, what is the percentage change of the bond? What does this problem tell you about the relationship between interest rate and bond price? Consider another bond – Bond D, which is a 10% coupon bond. Similar to Bond C, it has 10 years to maturity. It also makes semi-annual...