Question
In: Finance
If a bond's yield to maturity does not change, the return on the bond each year...
If a bond's yield to maturity does not change, the return on the bond each year will be equal to the yield to maturity. Confirm this for both a premium and a discount bond using a 4-year 4.4 percent coupon bond with annual coupon payments and a face value of $1,000.
a. Assume the yield to maturity is 3.4 percent.
What is the current value of the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Bond price today $
What will the bond value be in one year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Bond price in one year $
What is the rate of return for the first year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
Rate of return %
b. Assume the yield to maturity is 5.4 percent.
What is the current value of the bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Bond price today $
What will the bond value be in one year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Bond price in one year $
What is the rate of return for the first year? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
Rate of return %
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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why occurrence change in bond price as a function of change in yield to maturity and...
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yield to maturity and discuss how duration impacts the sensitivity
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why is the feature a concern?
what does this mean for investors?
can investors avoid this feature, why or why not?
Yield to maturity on a bond is:
Yield to maturity on a bond is:I. Above the coupon rate when the bond sells at a discount and
below the coupon rate when the bond sells at a premiumII. The discount rate that will set the present value of the
payments equal to the bond priceIII. Equal to the true compound return on investment only if all
interest payments received are reinvested at the yield to
maturityGroup of answer choicesI, II, and IIII and II onlyII onlyI only
the rate of return to the buyer of the bond is called a. Yield-to-maturity b. current...
the rate of return to the buyer of the bond is called
a. Yield-to-maturity
b. current yield
c. market rate
d. coupon rate
e. call rate
19. A 20-year, 6.500% annual payment bond settles on a coupon date. The bond's yield to...
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(b) What is the bond’s approximate modified duration? Use yield
changes of +/- 30 bps around the yield to maturity for your
calculations
20. Consider the bond from problem (19) above.
(a) Calculate the approximate convexity for the bond.
(b) Calculate the change in the full bond price for a 40 bps
change in yield.
I need an answer for
20. show...
A 12.25-year maturity zero-coupon bond selling at a yield to maturity of 8% (effective annual yield)...
A 12.25-year maturity zero-coupon bond selling at a yield to
maturity of 8% (effective annual yield) has convexity of 139.2 and
modified duration of 11.34 years. A 40-year maturity 6% coupon bond
making annual coupon payments also selling at a yield to maturity
of 8% has nearly identical modified duration—-12.30 years—but
considerably higher convexity of 272.9.
a. Suppose the yield to maturity on both bonds increases to 9%.
What will be the actual percentage capital loss on each bond? What...
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Suppose the yield to maturity on both bonds increases to 9%.
What will be the actual percentage capital loss on each bond? What
percentage capital...
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a.
Suppose the yield to maturity on both bonds increases to 9%.
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a. Suppose the yield to maturity on both bonds
increases to 8%.
What will be the actual percentage capital loss on each
bond?
What...
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