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It is easy assignment
. Consider the following bonds and please answer the ques
It is easy assignment . Consider the following bonds and please answer the questions related to each one in the excel worksheet provided with this activity.
Bond 1
Mr. Fahad Alghamdi CFO from Megasoft Corp. decides to issue $1000 bonds with a 3% coupon rate paid semiannually. The bonds mature 10 years from now. Mr. Raj Bhakta searches from Bloomberg.com that the bonds may be purchased for $795 each. What nominal and effective annual rate of return would Mr. Bhakta receive if he purchased the bond now and held it to maturity 10 years from now?
Bond 2
Mr. Jorge Garcia buys a GE bonds from TD Ameritrade for $875. The bond has a face value of $1000 and a 4% coupon rate paid semiannually. If the bond will be paid off at the end of 12 years, what rate of return will Mr. Garcia receive?
Bond 3
Ms. Sarai Toloza bought a $1000 bond of an American airline for $875 just after an interest payment had been made. The bond paid a 6% coupon interest rate semiannually. What nominal rate of return did she receive from the bond if he held it 13.5 years until its maturity?
Bond 4
Ms. Elizabeth Jackson can purchase a municipal bond with a par (face) value of $1000 that will mature in 10 years. The bond pays 6% interest compounded quarterly. If she can buy this bond for $1050, what rate of return will Ms. Jackson earn?
Bond 5
Mr. Kenneth Vega Ocasio buys a corporate bond with a face value of $1000 for $800. The bond matures in 10 years and pays a coupon interest rate of 5%. Interest is paid every quarter. Determine the effective rate of return if Kenneth holds the bond to maturity. Bond 6
What effective interest rate will Kenneth get if he keeps the bond (bond 5) for only 5 years and sells it for $900?
Bond 7
Mr. Roberto Muntaner Whitley purchased a 5%, $1000 30-year bond for $850 with 22 years to maturity. The interest was payable quarterly. The bond was kept for only 9 years and sold for $950 immediately after the 36th interest payment was received. What nominal and effective rates of return per year were made by Roberto on this investment?
Bond 8
A 9%, $10,000 bond that has interest payable semiannually sells for $8500. If he is planning to hold it until maturity, how long should Mr. Lee Lewis hold this bond? That is, please determine what the maturity date should be, so that Mr. Lewis may enjoy a 12% nominal rate of return on this investment.
Bond 9
ABC Beer Corporation is issuing some zero-coupon bonds, which pay no coupons. At maturity in 15 years they pay a face value of $1000. The bonds are expected to sell for $275 when issued and Mr. Ryan Johnson is interested in buying them. What is the nominal and effective annual interest rate that Ryanreceives?
Bond 10
Using the nominal rate from above, if interest is compounded semiannually, what price would another bond trade at, for par 1000 and 15 year ttm? Ryan is also considering investing in this bond.
Details of all these bonds are available in table 9.1.1 below Bond01
Bond02
Bond03
Bond04
Bond05
Bond06
Bond07
Bond08
Bond09
Bond10
Price
795
875
875
1050
800
800
850
8500
275
Face Value
1000
1000
1000
1000
1000
1000
1000
10000
1000
1000
Coupon rate
3%
4%
6%
6%
5%
5%
5%
9%
0%
0%
coupon $
compounding n/yr
2
2
2
4
4
4
4
2
1
2
Holding period
10
12
13.5
10
10
5
9
15
15
YTM
12%
8.99%
EAR
9.19%
ttm
10
12
13.5
10
10
10
22
x
15
15
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