1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
dsp73
3 years ago
8

The YTM on a bond is the interest rate you earn on your investment if interest rates don’t change. If you actually sell the bond

before it matures, your realized return is known as the holding period yield (HPY). a. Suppose that today you buy a bond with an annual coupon of 7 percent for $1,060. The bond has 21 years to maturity. What rate of return do you expect to earn on your investment? Assume a par value of $1,000. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-. Two years from now, the YTM on your bond has declined by 1 percent, and you decide to sell. What price will your bond sell for? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-2. What is the HPY on your investment? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Mathematics
1 answer:
AURORKA [14]3 years ago
8 0

Answer / Step-by-step explanation:

(a) The rate of return you expect to earn if you purchase a bond and hold it until maturity is the YTM.

If we recall the bond price equation for this bond is, we have

P0 = $1,060 = $100(PVIFAR%,21) + $1,000(PVIFR%,21)

Using a spreadsheet, financial calculator, or trial and error we find:

R = YTM = 9.42%

b) To find our HPY, we need to find the price of the bond in two years. The price of the bond in two years at the new interest rate, will be:

P2 = $100 (PVIFA 8.42%,17) + $1,000(PVIF 8.42%,17)

Therefore,  P2 = $1,139.6

(b2) To calculate the HPY, we need to find the interest rate that equates the price we paid for the bond with the cash flows we received. The cash flows we received were $100 each year for two years and the price of the bond when we sold it. The equation to find our HPY is therefore:

P0 = $1,060 = $100(PVIFAR%, 2) + $1,139.69(PVIFR%, 2)

Solving for R, we get:

R = HPY = 13.52%

Therefore,  the realized HPY is greater than the expected YTM when the bond was bought because interest rates dropped by 1 percent; bond prices rise when yields fall.

You might be interested in
The cycle time for trucks hauling concrete to a highway construction site is uniformly distributed over the interval 40 to 75 mi
jeka57 [31]

Answer:

0.8333 = 83.33% probability that the cycle time exceeds 50 minutes if it is known that the cycle time exceeds 45 minutes

Step-by-step explanation:

A distribution is called uniform if each outcome has the same probability of happening.

The uniform distributon has two bounds, a and b, and the probability of finding a value higher than x is given by:

P(X > x) = \frac{b - x}{b - a}

Uniformly distributed over the interval 40 to 75 minutes.

This means that a = 40, b = 75

It is known that the cycle time exceeds 45 minutes

This means that we can use a = 45

What is the probability that the cycle time exceeds 50 minutes?

P(X > 50) = \frac{75 - 50}{75 - 45} = 0.8333

0.8333 = 83.33% probability that the cycle time exceeds 50 minutes if it is known that the cycle time exceeds 45 minutes

8 0
3 years ago
Solve the inequality
AnnyKZ [126]

x+15\geq9\qquad\text{subtract 15 from both sides}\\\\\boxed{x\geq-6}

7 0
3 years ago
Writing proportions
maxonik [38]

Answer:

I think you would do $9.70 times 2. Afterward, you would divide 9.70 by 5 which gives you 1.94. Finally, you add them together, leaving you with. 11.64. I hope I helped with this.

:D

7 0
3 years ago
Read 2 more answers
....................answer
Oksana_A [137]

Answer:

d. 2

Step-by-step explanation:

8 0
3 years ago
Read 2 more answers
If 13 more than four times a number is 37, what is the number?
ElenaW [278]

Answer:

You would have to write a multi step equation.

4x+13=37

8 0
3 years ago
Other questions:
  • Which ratios form a proportion?
    10·1 answer
  • If a group of people P share 16 slices or pizza equal
    7·1 answer
  • The table below gives percent of flights that were delayed and on time during good and bad weather. Good weather Bad Weather Del
    6·2 answers
  • Show 2 ways three people can share a 5-segment chewy fruit worm<br><br> can u help me plz:)
    13·1 answer
  • Give the function w(x)=9×+8, evaluate w(5)
    11·1 answer
  • What is 41 multiplied by 10 to the 0 power?
    8·2 answers
  • June runs little slower than Carlos. She ran 1/4 of a mile in 3 minutes. How long ill it take her to run a full mile?
    8·2 answers
  • Aladder that has a length of 13 m leans against a wall with the base of the ladder 5 m away from the bottom of the wall
    9·1 answer
  • HELP PLSSSSSSS!!!!!!!!!
    9·2 answers
  • 12 Over a period of several years in a sleep-therapy clinic, the average latency to fall asleep for adult males, age 20-30, has
    14·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!