Purchase Solution

Description of Bond valuation

Not what you're looking for?

Ask Custom Question

4. Suppose the current zero coupon yield curve for risk free bonds is as follows:
Maturity (years) 1 2 3 4 5
YTM 5.00% 5.50% 5.75% 5.95% 6.05%

a. What is the price per $100 face value of a two year, zero coupon, risk free bond?
b. What is the price per $100 face value of a four year, zero coupon, risk free bond?
c. What is the risk free interest rate for a five year maturity?

9. Suppose a seven year, $1000 bond with an 8% coupon rate and semiannual coupons is trading with a yield to maturity of 6.75%
a. Is this bond currently trading at a discount, a par, or at a premium? Explain.
b. If the yield to maturity of the bond rises to 7.00% (APR with semiannual compounding) what price will the bond trade for?

Purchase this Solution
Solution Summary

Bond prices for different yields to maturity have been calculated.

Solution Preview

** The detailed answers are in the attached Excel file **

-------------------------------------
4. Suppose the current zero coupon yield curve for risk free bonds is as follows:

Maturity (years) 1 2 3 4 5
YTM 5.00% 5.50% 5.75% 5.95% 6.05%

a. What is the price per $100 face value of a two year, zero coupon, risk free bond?
Yield= 5.50%
Face Value= $100
Term to maturity= 2 years

Price= $89.85 =100/(1+0.055)^2

b. What is the price per $100 face value of a four year, zero coupon, risk free bond?

Yield= 5.95%
Face Value= $100
Term to ...

Purchase this Solution
Free BrainMass Quizzes
Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Motivation

This tests some key elements of major motivation theories.

View More Free Quizzes
Related BrainMass Solutions

  • Cumulative Voting, Dividends, Convertible Bond

    a convertible bond See attached file for full problem description.

  • Interest Rate Effect on Bond Price Valuation

    98157 Interest Rate Effect on Bond Price Valuation See attached file for full problem description. Go to Table 10-1 (attached) which is based on bonds paying 10 percent interest for 20 years.

  • Stock Valuation versus Bond Valuation

    Stock valuation is considerably less precise than bond valuation because of two reasons. First, the market value of a stock after a period of time is far less predictable than the value of a bond.

  • Determining Price of bond

    213118 Bond Valuation : Coupon Bonds An investor has two bonds in his or her portfolio, Bond C and Bond Z. Each matures in 4 years, has a face value of $1,000, and has a yield to maturity of 9.6 percent.

  • Bond Valuation

    103286 Bond Valuation Required Rates If the required rate of return on both bonds is 12 percent compounded semi-annually, what is the current price of Bond M and Bond N. See attached file for full problem description.

  • Different Valuation Models

    1) Valuation - zero-coupon bond Face Value of bond=M=$10000 Number of periods=n=8 Yield=r=3.5% The current price of zero coupon bond=M/(1+r)^n=10000/(1+3.5%)^8 =$7594.12 2) Valuation - corporate bond a) 6.6% market required rate of return Maturity

  • Bonds Valuation and Future Cash Flows

    599228 Bonds Valuation and Future Cash Flows Please give one real life example of bond or stock valuation and explain the concepts. Cite and list all references. Bonds valuation What is bonds valuation?

  • Valuing Stocks, Options and Bonds

    Valuation - preferred stock What is the value of a share of preferred stock that pays a $9.50 dividend? Assume k is 12%. 1. Valuation - zero-coupon bond A U.S.

  • Valuation: Zero-Coupon, Convertible, and Corporate Bonds

    543197 Valuation: Zero-Coupon, Convertible, and Corporate Bonds 1. Valuation - zero-coupon bond A U.S. Government bond with a face amount of $10,000 with 8 years to maturity is yielding 3.5%. What is the current selling price? 2.

  • Valuation of Corporate Zero-Coupon Bonds

    557174 Valuation of Corporate Zero-Coupon Bonds 1.Valuation - corporate bond A $1,000 corporate bond with 10 years to maturity pays a coupon of 8% (semi-annual) and the market required rate of return is a) 7.2% and b) 10%.

View More Related Solutions