An investor purchased a 3 year annual coupon bond one year ago. Its PAR value is...

An investor purchased a 3 year annual coupon bond one year ago. Its PAR value is $1,000 and coupon rate is 6%, paid annually. At the time you purchased the bond, its yield to maturity was 6.5%. The investor sells the bond now after receiving the first coupon payment.
(a) What is the annual Realised Compound Yield (RCY) from holding the bond for 1 year if the yield to maturity remains at 6.5%?
(b) What if the yield to maturity becomes 6.0% when the investors sells the bond?
(c) DC is attempting to construct a bond portfolio with a Macaulay duration of 9 years. He has $1,000,000 to invest and is considering allocating it between two zero coupon bonds. The first zero coupon bond is exactly 6 years, and the second zero coupon bond is exactly 16 years. Both of these bonds are currently offering at a market price of $100. If the yield curve is flat at 7.5%, duration will remain unchanged. Is it possible for DC to construct a bond portfolio having a duration of 9 years using these two types of zero coupon bonds? If possible, how? (Describe the actual portfolio on your working.) If not, why not?

Expert Solution

jeff jeffy answered 1 year ago

An investor just purchased a 5-year $1,000 par value bond. The coupon rate on this bond...

An investor just purchased a 5-year $1,000 par value bond. The coupon rate on this bond is 10% annually, with interest paid every year. If the investor expects to earn 12% simple rate of return, how much the investor should pay for it?

one year ago you purchased a 30-year 8% annual coupon bond at par. today, you receive...

one year ago you purchased a 30-year 8% annual coupon bond at par. today, you receive the first coupon and sold the bond at a market rate of interest of 6%. what rate of return did you earn? 8%, 19.12%, 6%,22.13%

You purchased a zero coupon bond one year ago for $113.35. The bond has a par...

You purchased a zero coupon bond one year ago for $113.35. The bond has a par value of $1,000 and the market interest rate is now 9 percent. If the bond had 25 years to maturity when you originally purchased it, what was your total return for the past year? Assume semiannual compounding. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

You purchased a zero coupon bond one year ago for $121.53. The bond has a par...

You purchased a zero coupon bond one year ago for $121.53. The bond has a par value of $1,000 and the market interest rate is now 8 percent. If the bond had 27 years to maturity when you originally purchased it, what was your total return for the past year? Assume semiannual compounding.

One year ago Clark Company issued a 10-year, 14% semiannual coupon bond at its par value...

One year ago Clark Company issued a 10-year, 14% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,070, and it now sells for $1,350. What is the bond's nominal yield to maturity? Round your answer to two decimal places. % What is the bond's nominal yield to call? Round your answer to two decimal places. % Would an investor be more likely to earn the YTM...

Consider the same 3 year bond with a $100 par value and a 5% annual coupon...

Consider the same 3 year bond with a $100 par value and a 5% annual coupon where comparable bonds are yielding 6% (assume continuous compounding). If the yield goes up 1%, then according to the duration formula for a bond's price change, the bond price will change by: (Present decreases as negative values, increases as positive values)

Three years ago you purchased a $1,000 par 12-year bond with a 3.5% semi-annual coupon at...

Three years ago you purchased a $1,000 par 12-year bond with a 3.5% semi-annual coupon at a price of $875. If the current price is $965, what was the yield to maturity of the bond when it was purchased? A. 4.89% B. 3.97% C. 3.87% D. 5.26% You purchased a $1,000 bond with a 4.6% semi-annual coupon and 15 years to maturity four years ago at a price of $855. If the yield has remained constant, what should be the...

An inflation-indexed 3-year, annual 4% coupon bond issued by Thailand at par (Present Value =Par Value...

An inflation-indexed 3-year, annual 4% coupon bond issued by Thailand at par (Present Value =Par Value = 100 Thai Bhat initially). Inflation in Thailand increases by 5 % in year 1, by 4 % in year 2, and zero % in year 3. What is the coupon amount in Thai Bhat in year 2? a. Bhat 4.20 b. Bhat 4.00 c. Bhat 5.00 d. Bhat 4.37

You just purchased a 30-year bond with 6% annual coupon, par value of $1000, and 15...

You just purchased a 30-year bond with 6% annual coupon, par value of $1000, and 15 years to maturity. The bond makes payments semi-annually and the interest rate in the market is 7.0%. Calculate bond price as of today • $936.74 • $1015.76 • $918.04 • $908.04 You just purchased a 30-year bond with 6% annual coupon, par value of $1000, and 15 years to maturity. The bond makes payments semi-annually and the interest rate in the market is 7.0%....

i) You just purchased a 10-year semi-annual coupon bond with a par value of $1,000 and...

i) You just purchased a 10-year semi-annual coupon bond with a par value of $1,000 and a coupon rate of 8%. The nominal yield to maturity is 7% per annum. Calculate the market price of the bond. ii)Three years later, immediately after receiving the sixth coupon payment, you sell the bond to your best friend. Your best friend’s nominal yield to maturity is 9% per annum. Calculate the price paid by your best friend.

Question