(Bond Valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bonds coupon rate is 7.4% What is the fair value of this bond?
(Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond?
A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and arequired return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond?
A1. (Bond valuation) A $1,000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond?A10. (Dividend discount model) Assume RHM is expected to pay a total cash dividend of $5.60 next year and its dividends are expected to grow at a rate of 6% per year forever. Assuming annual dividend payments, what is the current market value of a share of RHM stock if the required return on RHM common stock is 10%?5.60 = 5.60 =14010-6 45.60 = 5.60 =1.40.10.-06 .04A12. (Required return for a preferred stock) James River $3.38 preferred is selling for $45.25. The preferred dividend is nongrowing. What is the required return on James River preferred stock?A14. (Stock valuation) Suppose Toyota has nonmaturing (perpetual) preferred stock outstanding that pays a $1.00 quarterly dividend and has a required return of 12% APR (3% per quarter). What is the stock worth? $33.33B16. (Interest-rate risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose PhilEl’s bonds have identical coupon rates of 9.125% but that one issue matures in 1 year one in 7 years, and the third in 15 years. Assume that a coupon payment was made yesterday.a. If the yield to maturity for all three bonds is 8%, what is the fair price of each bond?b. Suppose that the yield to maturity for all of these bonds changed instantaneously to 7%. What is the fair price of each bond now?c. Suppose that the yield to maturity for all of these bonds changed instantaneously again, this time to 9%. Now what is the fair price of each bond?d. Based on the fair prices at the various yields to maturity, is interest-rate risk the same, higher, or lower for longer-versus shorter-maturity bonds?B20. (Constant growth model) Medtrans is a profitable firm that is not paying a dividend on its common stock. James Weber, an analyst for A. G. Edwards, believes that Medtrans will begin paying a $1.00 per share dividend in two years and that the dividend will increase 6% annually thereafter. Bret Kimesone of James’ colleagues at the same firm, is less optimistic. Bret thinks that Medtrans will begin paying a dividend in four years, that the dividend will be $1.00, and that it will grow at 4% annually. James and Bret agree that the required return for Medtrans is 13%.a. What value would James estimate for this firm?b. What value would Bret assign to the Medtrans stock?
You can buy a u.s bond government savings bond for half its face value today and it matures in 12 years you'll receive the full face or par value. That means you can buy a $100 par value savings bond for only $50 today and in 12 years you can redeem it for $100. What interest rate are you getting in this deal?
A bond with a face value of $100 matures in 5 years and has 10 semi-annual coupons of $5 each remaining. If the bond is selling for $145, then its annual yield to maturity is (around 1%). The answer is in brackets, but I don't understand how to get that answer.
Microhard has issued a bond with the following characteristics: Par: $1,000 Time to maturity: 17 years Coupon rate: 8 percent Semiannual payments Calculate the price of this bond if the YTM is
Callaghan Motors' bonds have 10 years remaining to maturity. Interest is paid annually; they have a $1,000 par value; the coupon interest rate is 6.5%; and theyield to maturity is 7%. What is the bond's current market price? Round your answer to two decimal places._____________Nungesser Corporation's outstanding bonds have a $1,000 par value, a 9% coupon paid semiannually, 18 years to maturity, and an 7% YTM. What is the bond's price?Round your answer to two decimal places._______________A bond has a $1,000 par value, 10 years to maturity, a 7% annual coupon, and sells for $985.a. What is its yield to maturity (YTM)? Round your answer to two decimal places.___________%b. Assume that the yield to maturity remains constant for the next 5 years. What will the price be 5 years from today? Round your answer to twodecimal places.___________
Can you please give me coipuke website where i can learn how to compute a bond price, yield maturity, macaulay duration bond, modified duration of the bond, interest paid semiannually,etc.....What is a "coipuke" website? Try this. I know it is a lot but, it may help... Bond duration In economics and finance, duration is the weighted average maturity of a bond's cash flows or of any series of linked cash flows. Then the duration of a zero coupon bond with a maturity period of n years is n years. In case there will be coupon payments, the duration will be less than n years. This measure is closely related to the derivative of the bond's price function with respect to the interest rate, and some authors consider the duration to be this derivative, with the weighted average maturity simply being an easy method of calculating the duration for a non-callable bond. It is sometimes explained in inaccurate terms as being a measurement of how long, in years, it takes for the price of a bond to be repaid by its internal cash flows. Price Duration is useful as a measure of the sensitivity of a bond's price to interest rate movements. It is approximately inversely proportional to the percentage change in price for a given change in yield. For example, for small interest rate changes, the duration is the approximate percentage that the value of the bond will lose for a 1% increase in interest rates. So a 15 year bond with a duration of 7 years would fall approximately 7% in value if the interest rate increased by 1%. Basics The standard definition of duration: Where P(i) is the present value of coupon i, t(i) is the future payment date, V is the bond Price and D is the duration. Cash Flow As stated at the beginning, the duration is the weighted average maturity time of a bond cash flow. For a zero-coupon the duration will be ÄT = Tf - T0, where Tf is the maturity date and T0 is the starting date of the bond. If there are different cash flows Ci the duration of every cash flow is ÄTi = Ti - T0. Being r the rate of the bond, continuously compounded, the price of the bond is To compute the duration, each duration of every cash flow is weighted with its value over the total value of the bond (n.b. the sum of the weights is 1): Thus the higher the coupon rate from a bond, the shorter the duration. Duration is always less than or equal to the life (maturity) of a coupon bond. Only a zero coupon bond (a bond with no coupons) will have duration equal to the maturity. Duration indicates also how much the value V of the bond changes in relation to a small change of the rate of the bond. We see that then for small variation är of the rate of the bond we have That means that the duration gives the negative of the relative variation of the value of a bond respect to a variation of the rate of the bond, forgetting the quadratic terms. The quadratic terms are taken in account in the Convexity. Dollar Duration and Applications to VaR The Dollar duration is defined as the product of the Duration and the price (value). It gives then the variation of a bond for a small variation of the interest rate. Dollar duration D$ is commonly used for VaR (Value-at-Risk) calculation. If V = V(r) denotes the value of a security depending on the interest rate r, dollar duration can be defined as . To illustrate applications to portfolio risk management, consider a portfolio of securities dependent on the interest rates r1,...,rn as risk factors, and let V = V(r1,...,rn) denote the value of such portfolio. Then the exposure vector has components Accordingly, the change in value of the portfolio can be approximated as that is, a component that is linear in the interest rate changes plus an error term which is at least quadratic. This formula can be used to calculate the VaR of the portfolio by ignoring higher order terms. Typically cubic or higher terms are truncated. Quadratic terms, when included, can be expressed in terms of (multi-variate) bond convexity. One can make assumptions about the joint distribution of the interest rates and then calculate VaR by Monte Carlo simulation or, in some special cases (e.g., Gaussian distribution assuming a linear approximation), even analytically. The formula can also be used to calculate the DV01 of the portfolio (cf. below) and it can be generalized to include risk factors beyond interest rates. Macaulay duration Macaulay duration, named for Frederick Macaulay who introduced the concept, is the weighted average maturity of a bond where the weights are the relative discounted cash flows in each period. Macaulay showed that an unweighted average maturity is not useful in predicting interest rate risk. He gave two alternative measures that are useful. The theoretically correct Macauley-Weil duration which uses zero-coupon bond prices as discount factors, and the more practical form (shown above) which uses the bond's yield to maturity to calculate discount factors. With the use of computers, both forms may be calculated, but the Macaulay duration is still widely used. In case of continuously compounded yield the Macaulay duration coincides with the opposite of the partial derivative of the price of the bond with respect to the yield --as shown above. In case of yearly compounded yield, the modified duration coincides with the latter. Modified duration In case of yearly compounded yield the relation is not valid anymore. That is why the modified duration D * is used instead: where r is the yield to maturity of the bond, and n is the number of cashflows per year. Let us prove that the relation is valid. We will analyze the particular case n = 1. The value (price) of the bond is where i is the number of years after the starting date the cash flow Ci will be paid. The duration, defined as the weighted average maturity, is then The derivative of V with respect to p is: multiplying by we obtain or from which we can deduce the formula which is valid for yearly compounded yield. Embedded options and effective duration For bonds that have embedded options, Macauley duration and modified duration will not correctly approximate the price move for a change in yield. Consider a bond with an embedded put option. As an example, a $1,000 bond that can be redeemed by the holder at par at points before the bond's maturity. No matter how high interest rates become, the price of the bond will never go below $1,000. This bond's price sensitivity to interest rate changes is different from a non-puttable bond with identical cashflows. Bonds that have embedded options should be analyzed using "effective duration." Effective duration is a discrete approximation of the slope of the bond's value as a function of the interest rate. where Äy is the amount that yield changes, and V - ÄyandV + Äy are the values that the bond will take if the yield falls by y or rises by y, respectively. Average duration The sensitivity of a portfolio of bonds such as a bond mutual fund to changes in interest rates can also be important. The average duration of the bonds in the portfolio is often reported. The duration of a portfolio equals the weighted average maturity of all of the cash flows in the portfolio. If each bond has the same yield to maturity, this equals the weighted average of the portfolio's bond's durations. Otherwise the weighted average of the bond's durations is just a good approximation, but it can still be used to infer how the value of the portfolio would change in response to changes in interest rates. Bond duration closed-form formula C = coupon payment per period (half-year) i = discount rate per period (half-year) a = fraction of a period remaining until next coupon payment m = number of coupon dates until maturity Convexity Duration is a linear measure of how the price of a bond changes in response to interest rate changes. As interest rates change, the price does not change linearly, but rather is a convex function of interest rates. Convexity is a measure of the curvature of how the price of a bond changes as the interest rate changes. Specifically, duration can be formulated as the first derivative of the price function of the bond with respect to the interest rate in question, and the convexity as the second derivative. Convexity also gives an idea of the spread of future cashflows. (Just as the duration gives the discounted mean term, so convexity can be used to calculate the discounted standard deviation, say, of return.) PV01 PV01 is the present value impact of 1 basis point move in an interest rate. It is often used as a price alternative to duration (a time measure). DV01 DV01 (Dollar Value of 1 basis point) is the same as PV01. See also Bond convexity Bond valuation Immunization (finance) Stock duration Bond duration closed-form formula Yield to maturity
A bond price of $987.50 has a face value of $1000, pays 5% semiannually, and will repay the face value in 15 years.5% tables Present Values Pv Annuityyear 13 .53032 9.39357year 14 .50507 9.89864year 15 .48102 10.37966What is the yield to maturity of the loana) 4.9%b) 5.14%c) 5.00%d) 2.57%Can you please include how you got the answer?
A 5.25% annual coupon rate bond that currently sells for $1120.56 and has a yield to maturity of 4.2%. The number of years to maturity is?The answer is given: 16 years; however I am having trouble figuring out the PV, FV, PMT, I/Y, Etc. to get there
Determine the current market prices of the following $1,000 bonds if the comparable rate is 10% and answer the following questions.XY 5.25% (interest paid annually) for 20 yearsAB 14% (interest paid annually) for 20 yearsC. If CD, Inc., has a bond with a 5.25% coupon and a maturity of 20 years but which was lower rated, what would be its price relative to the XY, Inc., bond?Explain.