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Vadim26 [7]
3 years ago
5

Assume that you are considering the purchase of a 15-year bond with an annual coupon rate of 9.5%. The bond has face value of $1

,000 and makes semiannual interest payments. If you require an 11.0% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond?
Business
1 answer:
Dimas [21]3 years ago
8 0

Answer:

We are going to pay  $892.137 or less for the bonds.

Explanation:

We need to calculate the present value of the bond at 11% interet rate

Cashflow from the bond:

Principal x interest = interest service

1,000 x 9.5% = 95

Present value of annuity of 95 during 15 year at 11%

C \times \frac{1-(1+r)^{-time} }{rate} = PV\\

95 * \frac{1-(1+.11)^{-15} }{.11} = PV\\

Present value of the interest service 683,1326097

Second we have to calculate the present value of the 1,000 principal in 15 years

\frac{Amount}{(1+rate)^{time}} ) = PV

\frac{1,000}{(1+0.11)^{15}} ) = PV

209.0043467

Finally we add both together for the present value fothe bond at our rate

209.0043467+ 683,1326097 = 892.1369564 = 892.137

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Answer:

Year             Cash Flow (A)            Cash Flow (B)

0                      -37,500                      -37,500

1                         17,300                         5,700

2                        16,200                       12,900

3                        13,800                       16,300

4                         7,600                       27,500

1) Using an excel spreadsheet and the IRR function:

IRR project A = 20%

IRR project B = 19%

2) Using the IRR decision rule, Bruin should choose project A.

3) In this case, since the length of the projects is only 4 years, then there should be no problem with the IRR decision rule, but for projects with longer time lengths, the discounts rates might vary and the best option is to use the modified internal rate of return (MIRR). But in this case the NPV of project B is higher, then Bruin should probably project B because it has a higher NPV. The NPV is always more important then the IRR.

4) Again using an excel spreadsheet and the NPV function:

NPV project A = $6,331

NPV project B = $8,139

5) first we must subtract cash flows from A by the  cash flows from B:

1      $11,600

2     $3,300

3    -$2,500

4   -$19,900

then we calculate the IRR = 16%

Bruin should be indifferent between the two projects at a 16% discount rate. That means that at discount rates above 16%, you should choose project A, but at discount rates below 16%, you should choose project B

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By 2015, the foreclosure rate was down by 20%. The metropolitan statistical areas showing the highest percentage of improvement
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The correct option is C) Washington, D.C.

By 2015, the foreclosure rate was down by 20%. The metropolitan statistical areas showing the highest percentage of improvement included all of the following except "Washington, D.C".

<h3>What is foreclosure rate?</h3>

The process of foreclosure starts when a borrower is unable to make their mortgage payments. When a mortgage is foreclosed, the lender normally seizes the property and makes an effort to sell it. This occurs when real estate is utilised as security for mortgage loans, making your house a form of security.

The given are the ways to avoid Foreclosure-

  • Ask For Forbearance: As you may remember, forbearance enables borrowers to temporarily suspend mortgage payments while they recover their savings, boost their income, or pay down debt in the wake of financial troubles.
  • Apply For A Refinance: Refinancing into a more manageable payment can prevent you from going into default on the loan if you're worried about going through with a foreclosure. This regrettably isn't a possibility for everyone since it can only really be done if you haven't missed a payment.
  • Ask For A Mortgage Reinstatement: If you experienced temporary financial issues that have subsequently disappeared, speak with your servicer to learn about your alternatives.
  • Apply For A Short Sale: Selling your house for less than what is owed on the mortgage is known as a short sale. This requires the lender's approval, and all of the sale's proceeds will go to the lender.

To know more about fastest-growing foreclosure rates, here

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The complete question is -

By 2015, the foreclosure rate was down by 20%. The metropolitan statistical areas showing the highest percentage of improvement included all of the following EXCEPT

A) Los Angeles.

B) Miami.

C) Washington, D.C.

D) Atlanta.

Washington, D.C.

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