2) Mary buys a 10 year bond with $10, 000 face value, semiannual nominal bond rate...

2) Mary buys a 10 year bond with $10, 000 face value, semiannual nominal bond rate 3%, and semiannual nominal yield rate 4%. She wants to reinvest the semiannual coupons (immediately after each coupon is received) into a fund so that her non time valued net profit at maturity (A.V. of coupons + face value at maturity − bond price) is $5, 000. Find the interest rate (as a semiannual nominal rate) that the account must earn for this to occur.

Solutions

Expert Solution

Price of the bond= $ 9,182.43 Calculated using PV function of Excel as follows:

Face value- price= $10,000-$9,182.43 = $817.57

In order to get $5,000 on maturity as net profit, maturity value of interest payments required

= $5,000 - $817.57 = $ 4,182.43

Semi annual interest received and re-invested= $1,000*3%/2 = $150

Semi annual Interest rate required= 3.362285% calculated using RATE function of Excel as follows:

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Mary buys a 10-year, 1,000 par value bond with 8% semiannual coupons. The price of the...

Mary buys a 10-year, 1,000 par value bond with 8% semiannual coupons. The price of the bond to earn a yield of 6% convertible semiannually is 1,204.15. The redemption value is more than the par value. Calculate the price Mary would have to pay for the same bond to yield 10% convertible semiannually. Show all work.

A 30 year bond with $10, 000 face value offers a coupon rate of 6% and...

A 30 year bond with $10, 000 face value offers a coupon rate of 6% and a yield rate of 10%. Suppose you pay taxes (immediately after receiving each coupon) of 5% of the full coupon amount, and pay a 10% tax immediately after the face value is received on the amount of discount that the bond was purchased at. Find the actual yield (as a semiannual rate) for the 30 year period.

Suppose a bond with a 10% coupon rate and semiannual coupons, has a face value of...

Suppose a bond with a 10% coupon rate and semiannual coupons, has a face value of $1000, 20 years to maturity and is selling for $1197.93. ◦Is the YTM more or less than 10%? 1197.93 = 50[1 – 1/(1+r)40] / r + 1000 / (1+r)40 i know the answer is 4% but how can i calculated the r by hand?

James buys a newly issued, $1,000 face value, 10-year maturity bond with a coupon rate of...

James buys a newly issued, $1,000 face value, 10-year maturity bond with a coupon rate of 12% (coupons are semi-annual) at $1,000. What is the current yield to maturity (YTM, nominal and semi-annually compounded) of this bond? A. 13.42% B. 10% C. 8% D. 12%

Alenza, Inc. plans to issue a 10-year semiannual bond with a face value of $990,000 with...

Alenza, Inc. plans to issue a 10-year semiannual bond with a face value of $990,000 with a coupon rate of 4%. On the date of issue, it expects the market rate for similar bonds will be 6%. Under these conditions, Alenza would like to know how much this issuance would raise. What framework will you use to solve this problem? Cost-Volume-Profit (CVP) Counting - Permutation or Combination Time Value of Money (TVM) Binomial Probability - B(n, p) Normal or Standard...

Suppose a 10-year zero coupon Treasury bond with a face value of $10, 000 sells for $6,000.

Suppose a 10-year zero coupon Treasury bond with a face value of $10, 000 sells for $6,000. a. Find the bond value. b. Suppose the price of the above bond rose to Kshs 7,500, find the new yield. c. Explain what happens when interest rates increase.

A 25-year bond with a face value of $1,000 has a coupon rate of 8.50%, with semiannual payments.

4) A 25-year bond with a face value of $1,000 has a coupon rate of 8.50%, with semiannual payments. a. What is the coupon payment for this bond? b. Enter the cash flows for the bond on a timeline. a. What is the coupon payment for this bond? The coupon payment for this bond is $ -----. (Round to the nearest cent.) b. Enter the cash flows for the bond on a timeline. Cash Flow Amount (Round to the...

an investor buys a bond having a face value of $1,000 and a coupon rate of...

an investor buys a bond having a face value of $1,000 and a coupon rate of 6% payable semiannually. the market rate is now 3% and the bond natures in 15 Years. How much did the investor pay?

2) There is a 7% coupon bond (semiannual) maturing in 2 years. A face value is...

2) There is a 7% coupon bond (semiannual) maturing in 2 years. A face value is $1,000. Then the price of the bond is $ . (Note:Round to the nearest hundredth.) 1) What are the 1.5 year and 2 year forward rates? (Note: Round to the nearest hundredth.) Maturity (Year) Spot Rate Forward Rate 0.5 3.01 % 3.01% 1 3.21 % 3.41% 1.5 3.53 % % 2 3.87 % %

A 12-year semiannual bond with a coupon rate of 6% has a face value of $1,000 and a YTM of 7%. The price of the bond is

Question 1 A 12-year semiannual bond with a coupon rate of 6% has a face value of $1,000 and a YTM of 7%. The price of the bond isQuestion 1 options:912.85914.25916.36919.71920.57Question 2 A 4-year discount bond with a face value of $1,000 sells at $915. The YTM of the bond isQuestion 2 options:2.24%2.52%2.83%3.21%3.48%Question 3 A 7-year semiannual bond with a face value of $1,000 and a coupon rate of 8% sells at $974. The YTM of the bond isQuestion 3 options:4.3%5.5%6.5%7.2%8.5%Question 4 Consider a...

Subjects