4. (4pts) A $10,000 par value 10-year bond with 8% annual coupons is bought at a...

4. (4pts) A $10,000 par value 10-year bond with 8% annual coupons is bought at a premium to yield an annual effective rate of 6%. Calculate the interest earned and the amount of premium amortized in the 7th coupon payment. Also find the total interest earned in the 10 years. (Answers: $641.58, $158.42, $6527.98)

Expert Solution

n = 10
I = 6%
Cashflows		Amount	PVF	Present Value
Annual Interest		800	7.36009	5888.072
Principal		10000	0.558395	5583.95
Price f Bonds				11472.02

Amort Chart:
Period	Cash Int	Int Exp	Premium	Unamortized	Carrying
			Amortized	Premium	Value
0				1472.02	11472.02
1	800.00	688.32	111.68	1360.34	11360.34
2	800.00	681.62	118.38	1241.96	11241.96
3	800.00	674.52	125.48	1116.48	11116.48
4	800.00	666.99	133.01	983.47	10983.47
5	800.00	659.01	140.99	842.47	10842.47
6	800.00	650.55	149.45	693.02	10693.02
7	800.00	641.58	158.42	534.60	10534.60
8	800.00	632.08	167.92	366.68	10366.68
9	800.00	622.00	178.00	188.68	10188.68
10	800.00	611.32	188.68	0.00	10000.00

Total Interest earned in Year-7			641.58
Premium Amortized in Year-7			158.42
Bonds Carrying Value in Year-7			10534.6

jeff jeffy answered 2 years ago

Hafu buys a 10-year bond with annual coupons. The par value of this bond is 10000...

Hafu buys a 10-year bond with annual coupons. The par value of this bond is 10000 as is the redemption value, and it has an annual coupon rate of 6%. The price Hafu pays for the bond gives it an annual effective yield of 12%. Hafu has set up her investments so that the coupons are immediately deposited in a savings account with an annual effective rate of 9%. What is the annual effective yield (IRR) of Hafu’s overall investment...

A five-year par value $10,000 5% bond with quarterly coupons is bought to yield 6% convertible...

A five-year par value $10,000 5% bond with quarterly coupons is bought to yield 6% convertible quarterly. Determine the practical dirty and clean values of the bond one month after the eighth coupon payment using the 30/360 rule. Please provide steps/explanation, thank you!

A $1,000 par value 10-year bond maturing at par with 8% semiannual coupons is selling for...

A $1,000 par value 10-year bond maturing at par with 8% semiannual coupons is selling for $900 Find the nominal yield rate convertible semiannually, using the "Premium/Discount formula". (NOTE: The premium/discount formula is: P = C + (Fr - Ci)an]i where P = price, C = redemption value, F = par value, i = yield rate (yield to maturity)

Bond A and Bond B are both annual coupon, five-year, 10,000 par value bonds bought to...

Bond A and Bond B are both annual coupon, five-year, 10,000 par value bonds bought to yield an annual effective rate of 4%. Bond A has an annual coupon rate of r%r%, a redemption value that is 10% below par, and a price of P. Bond B has an annual coupon rate of (r+1)%(r+1)%, a redemption value that is 10% above par, and a price of 1.2P. Calculate r% 5.85% 6.85% 7.85% 8.85% 9.85%

You bought an 8% annual coupon, 10 year maturity bond ($1,000 par value) when the discount...

You bought an 8% annual coupon, 10 year maturity bond ($1,000 par value) when the discount rate was 9%. A year later, the discount rate was 10%. What is your holding period rate of return over the year? Please also include financial calculator calculations.

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 commercial bank purchased a $100M par, 10-year bond with 4% (semi-annual) coupons, and wants to...

A commercial bank purchased a $100M par, 10-year bond with 4% (semi-annual) coupons, and wants to convert this asset to be LIBOR based. A 10-year interest rate swap is available with fixed rates of 3.48% (bid) and 3.52% (offer), where all rates are semi-annual. i] Specify the swap trade. ii] What variable rate does the bank earn?

A bond that pays annual coupons has a par value of $1,000, an 8% coupon rate,...

A bond that pays annual coupons has a par value of $1,000, an 8% coupon rate, 3 years left to maturity, and is currently priced at a YTM of 6.0%. (a) Calculate duration and modified duration for the bond. (b) If the YTM on the bond changes from its current 6.0% up to 8.0%, what price change (% and $) and new price ($) is predicted by the modified duration calculated in part a.? (c) What is the size and...

A 10 year 1000 bond with 7% semi-annual coupons is bought for a price to yield...

A 10 year 1000 bond with 7% semi-annual coupons is bought for a price to yield 6.5% conv. semiannually. It is bought on Feb 1, 2003. Find the actual selling price on Dec. 31, 2003. Find the price quoted in paper (full) on Dec 31, 2003. Use 30/360.

Bond XYZ is a 4-year, 8% annual coupon bond, with $1,000 par value. The required return...

Bond XYZ is a 4-year, 8% annual coupon bond, with $1,000 par value. The required return on the bond is 5.4%. 1)What is the duration, 2) What is the modified duration of this bond?

Question