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
Airida [17]
3 years ago
6

Bond Yields and Rates of Return A 30-year, 10% semiannual coupon bond with a par value of $1,000 may be called in 4 years at a c

all price of $1,100. The bond sells for $1,050. (Assume that the bond has just been issued.) What is the bond's yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.
Business
1 answer:
Nookie1986 [14]3 years ago
3 0

Answer:

The bond's yield to maturity is 9.45% using Excel to get exact values, and 9.59% using approximate method.

Explanation:

We can calculate is using 2 ways, using Excel to get the exact percentage or with approximate methods, calculating the semi-annual Yield to Maturity using the following formula

YTM_{sm} =\cfrac{PMT+\cfrac{FV-PV}n}{\cfrac{FV+PV}2}

And from there we can calculate the Yield to Maturity just by multiplying the semi-annual one by 2.

Identifying the given information.

We have a period of 30 years, so for the semiannual bond we have n=2(30) = 60 periods.

The face value, FV, is $1000, the coupon rate is 0.10, thus we can use them to  find the interest per period PMT.

PMT=0.10 \times \cfrac{1000}{2}\\PMT=\$ 50

The current price of the bond, PV is $1050.

Replacing the values on the semiannual Yield to Maturity

YTM_{sm} =\cfrac{PMT+\cfrac{FV-PV}n}{\cfrac{FV+PV}2}

YTM_{sm}=\cfrac{50+\cfrac{1000-1050}{60}}{\cfrac{1000+1050}{2}}

Simplifying we get

YTM_{sm}=4.797\%\\

Finding the Yield to Maturity.

We can just multiply by 2 to get the Yield to Maturity from our previous result and rounding it to 2 decimals we get

YTM = 2 YTM_{sm}\\YTM=9.59\%

Alternatively we can use Excel and write:

RATE(n, PMT, PV, FV)*2

That is

RATE(60,50,1050,1000)*2

And we will get the exact Yield to maturity 9.49%

You might be interested in
A 10 year 7% municipal bond, quoted on a 5.00 basis, is priced at 104. A 10 year 6% municipal bond, quoted on a 5.00 basis, is p
goldfiish [28.3K]

Answer:

D. 102.2

Explanation:

Using a simultaneous equation

Since the year is constant

We will use the the basis and municipal bond as our variables

So equation 1 = 7x+5y=104

Eqn ii= 6x + 5y= 101

Using eliminating method

X=3

Substitute for x in equation 1 to get the value of y

7(3) + 5y=104

5y=104-21

Y=16.6

To get the price for the percent of 6.40 at 5% basis substitute for the value of X and Y respectively in the both equation

6.4x+5y=?

6.4(3) + 5(16.6)=

19.2+83=102.2

3 0
3 years ago
True/False
VLD [36.1K]

Answer:

False.

Explanation:

A tax bracket is the tax rate applied to specific ranges of income.

For example, a 20% tax rate is applied to income between $500,000 - $700,000.

A tax rate of 23% is applied to income between $800,000 - $1,000,000.

I hope my answer helps you.

4 0
3 years ago
Read 2 more answers
a. Find the duration of a 6% coupon bond making annual coupon payments if it has three years until maturity and has a yield to m
laila [671]

Answer:

A) the formula to calculate modified duration of bonds:

modified duration = [1 - (1 + y)⁻ⁿ] / y

modified duration = [1 - (1 + 6%)⁻³] / 6%  = 2.673 years

if you want to determine the Macaulay duration = modified duration x (1 + yield) = 2.673 years x 1.06 = 2.833 years

B)   modified duration = [1 - (1 + 10%)⁻³] / 10%  = 2.487 years

if you want to determine the Macaulay duration = modified duration x (1 + yield) = 2.487 years x 1.1 = 2.736 years

4 0
3 years ago
The capital asset pricing model (CAPM) is based on the premise that: Group of answer choices Neither systematic nor unsystematic
Dahasolnce [82]

Answer:

only systematic variability in cash flows is relevant.

Explanation:

A capital asset pricing model is a model that is used for determining  the theoretically appropriate required rate of return for an asset, and to make the decisions about the adding assets to a well-diversified portfolio. It is the relationship between the systematic risk and the expected return for the assets. It is based on the premises that the only systematic variability in the cash flows is very relevant.

8 0
3 years ago
When making decisions, managers often have to decide between doing what is beneficial for themselves (and possibly the firm) in
KonstantinChe [14]

Answer:

D. must ensure that long-term goals of the firm are aligned with the short-term goals of each individual within the firm.

Explanation:

According to a different source, these are the options that come with this question:

A. Must evaluate its quarterly profit statement from an ethics standpoint.

B. must state its long-term goals in general terms, so as to not interfere with managers' short-term goals.

C. must always put society's needs ahead of the firm's needs.

D. must ensure that long-term goals of the firm are aligned with the short-term goals of each individual within the firm.

E. should adhere rigidly to legal standards in its industry.

F. The firm does not need to always put society's needs above its own; however, it is important to ensure that short-term behavior supports long-term goals.

A firm does not always need to put the interests of others ahead of its own. Moreover, it does not need to be able to reconcile short and long-term goals in all situations. However, it does need to ensure that, overall, the short-term goals of individuals are not against the long-term goals of the firm. In this way, it can better ensure a long-lasting impact and success.

5 0
3 years ago
Other questions:
  • In an attempt to make a conflict between two employees less personal and emotional, their manager assigns each of them to approa
    14·2 answers
  • Oriole Company lost most of its inventory in a fire in December just before the year-end physical inventory was taken. The corpo
    5·1 answer
  • A new tax on gasoline causes a reduction in the purchase of new vehicles with poor fuel economy. This is an example of what type
    15·1 answer
  • Assume that Canadian consumers increase their demand for Mexican financial assets How would the international supply of Canadian
    13·1 answer
  • In the accompanying figure, you can enter CSU10 in the ____ row of the Customer Number field to find all customers whose custome
    10·1 answer
  • Lenovo, HP, Dell, Acer Group, and Apple dominate 70% of the world market for personal computers). Smaller competitors survive by
    15·1 answer
  • Whats ur dream job??? not a serious q or nun just bored and want to make a conversation lol
    11·2 answers
  • _____ is the careful coordination of all promotional activities to produce a consistent, unified message that is customer focuse
    11·1 answer
  • The interest portion of a monthly loan payment is $427.93. If the interest rate is 6.875%, what is the current principal balance
    12·1 answer
  • A business that is owned and managed by one person is a(n)
    7·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!