Question

In: Finance

BOND VALUATION An investor has two bonds in her portfolio, Bond C and Bond Z. Each...

BOND VALUATION

An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 9.5%. Bond C pays a 10% annual coupon, while Bond Z is a zero coupon bond.

  1. Assuming that the yield to maturity of each bond remains at 9.5% over the next 4 years, calculate the price of the bonds at each of the following years to maturity. Round your answer to the nearest cent.
    Years to Maturity Price of Bond C Price of Bond Z
    4 $ $
    3
    2
    1
    0

Solutions

Expert Solution

Price of bond C for 4 years

Information provided:

Par value= future value= $1,000

Time= 4 years

Yield to maturity= 9.5%

Coupon rate= 10%

Coupon payment= 0.10*1,000= $100

The price of the bond is computed by calculating the present value.

The below has to be entered to compute the present value:

FV= 1,000

N= 4

I/Y= 9.5

PMT= 100

Press the CPT key and PV to compute the present value.

The value obtained is 1,016.02.

Therefore, the price of the bond is $1,016.02.

Price of bond C for 3 years

Information provided:

Par value= future value= $1,000

Time= 3 years

Yield to maturity= 9.5%

Coupon rate= 10%

Coupon payment= 0.10*1,000= $100

The price of the bond is computed by calculating the present value.

The below has to be entered to compute the present value:

FV= 1,000

N= 3

I/Y= 9.5

PMT= 100

Press the CPT key and PV to compute the present value.

The value obtained is 1,012.54.

Therefore, the price of the bond is $1,012.54.

Price of bond C for 2 years

Information provided:

Par value= future value= $1,000

Time= 2 years

Yield to maturity= 9.5%

Coupon rate= 10%

Coupon payment= 0.10*1,000= $100

The price of the bond is computed by calculating the present value.

The below has to be entered to compute the present value:

FV= 1,000

N= 2

I/Y= 9.5

PMT= 100

Press the CPT key and PV to compute the present value.

The value obtained is

Therefore, the price of the bond is $1,008.74.

Price of bond C for 1 year

Information provided:

Par value= future value= $1,000

Time= 1 year

Yield to maturity= 9.5%

Coupon rate= 10%

Coupon payment= 0.10*1,000= $100

The price of the bond is computed by calculating the present value.

The below has to be entered to compute the present value:

FV= 1,000

N= 1

I/Y= 9.5

PMT= 100

Press the CPT key and PV to compute the present value.

The value obtained is

Therefore, the price of the bond is $1,004.57.

Price of bond C for 0 year

Information provided:

Par value= future value= $1,000

Time= 0 year

Yield to maturity= 9.5%

Coupon rate= 10%

Coupon payment= 0.10*1,000= $100

The price of the bond is computed by calculating the present value.

The below has to be entered to compute the present value:

FV= 1,000

N= 0

I/Y= 9.5

PMT= 100

Press the CPT key and PV to compute the present value.

The value obtained is 1,000

Therefore, the price of the bond is $1,000.

Price of bond Z for 4 years

Information provided:

Par value= future value= $1,000

Time= 4 years

Yield to maturity= 9.5%

The price of the bond is computed by calculating the present value.

The below has to be entered to compute the present value:

FV= 1,000

N= 4

I/Y= 9.5

Press the CPT key and PV to compute the present value.

The value obtained is 695.57.

Therefore, the price of the bond is $695.57.

Price of bond Z for 3 years

Information provided:

Par value= future value= $1,000

Time= 3 years

Yield to maturity= 9.5%

The price of the bond is computed by calculating the present value.

The below has to be entered to compute the present value:

FV= 1,000

N= 3

I/Y= 9.5

Press the CPT key and PV to compute the present value.

The value obtained is 761.65

Therefore, the price of the bond is $761.65.

Price of bond Z for 2 years

Information provided:

Par value= future value= $1,000

Time= 2 years

Yield to maturity= 9.5%

The price of the bond is computed by calculating the present value.

The below has to be entered to compute the present value:

FV= 1,000

N= 2

I/Y= 9.5

Press the CPT key and PV to compute the present value.

The value obtained is 834.01.

Therefore, the price of the bond is $834.01.

Price of bond Z for 1 year

Information provided:

Par value= future value= $1,000

Time= 1 year

Yield to maturity= 9.5%

The price of the bond is computed by calculating the present value.

The below has to be entered to compute the present value:

FV= 1,000

N= 1

I/Y= 9.5

Press the CPT key and PV to compute the present value.

The value obtained is 913.24

Therefore, the price of the bond is $913.24.

Price of bond Z for 0 year

Information provided:

Par value= future value= $1,000

Time= 0 year

Yield to maturity= 9.5%

The price of the bond is computed by calculating the present value.

The below has to be entered to compute the present value:

FV= 1,000

N= 0

I/Y= 9.5

Press the CPT key and PV to compute the present value.

The value obtained is 1,000

Therefore, the price of the bond is $1,000.

In case of any query, kindly comment on the solution.

jeff jeffy answered 10 months ago
Next > < Previous

Related Solutions

An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures...
An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 9.2%. Bond C pays a 10% annual coupon, while Bond Z is a zero coupon bond. a. Assuming that the yield to maturity of each bond remains at 9.2% over the next 4 years, calculate the price of the bonds at each of the following years to maturity....
An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures...
An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 9.3%. Bond C pays a 12% annual coupon, while Bond Z is a zero coupon bond. Assuming that the yield to maturity of each bond remains at 9.3% over the next 4 years, calculate the price of the bonds at each of the following years to maturity. Round...
An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures...
An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 8.4%. Bond C pays a 10% annual coupon, while Bond Z is a zero coupon bond. Assuming that the yield to maturity of each bond remains at 8.4% over the next 4 years, calculate the price of the bonds at each of the following years to maturity. Round...
An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures...
An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 9.3%. Bond C pays a 10.5% annual coupon, while Bond Z is a zero coupon bond. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet Assuming that the yield to...
Excel Online Structured Activity: Bond valuation An investor has two bonds in her portfolio, Bond C...
Excel Online Structured Activity: Bond valuation An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 9.1%. Bond C pays a 10.5% annual coupon, while Bond Z is a zero coupon bond. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open...
BOND VALUATION An investor has two bonds in his portfolio that have a face value of...
BOND VALUATION An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 10% annual coupon. Bond L matures in 15 years, while Bond S matures in 1 year. a. What will the value of each bond be if the going interest rate is 5%, 8%, 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made...
Problem 7-5 Bond valuation An investor has two bonds in his portfolio that both have a...
Problem 7-5 Bond valuation An investor has two bonds in his portfolio that both have a face value of $1,000 and pay a 6% annual coupon. Bond L matures in 11 years, while Bond S matures in 1 year. Assume that only one more interest payment is to be made on Bond S at its maturity and that 11 more payments are to be made on Bond L. a. What will the value of the Bond L be if the...
Bond Value as Maturity Approaches An investor has two bonds in his portfolio. Each bond matures...
Bond Value as Maturity Approaches An investor has two bonds in his portfolio. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity equal to 8.1%. One bond, Bond C, pays an annual coupon of 11%; the other bond, Bond Z, is a zero coupon bond. Assuming that the yield to maturity of each bond remains at 8.1% over the next 4 years, what will be the price of each of the...
An investor has two bonds in his portfolio that have a facevalue of $1,000 and...
An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 15 years, while Bond S matures in 1 year.A. What will the value of the Bond L be if the going interest rate is 7%, 8%, and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made on...
An investor is looking at two bonds. The first is a Treasury bond that has an...
An investor is looking at two bonds. The first is a Treasury bond that has an annual coupon rate of 5%, matures in 10 years and with a $1,000 par value. The second is zero-coupon bond with a 3% yield to maturity that matures in 10 years. The market rate of interest is currently at 3%. a) Compute the current price of the coupon-bearing Treasury bond? (15 pts) b) Interest rates are forecast to rise by 50 basis points (0.5%)...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT