1. A zero coupon bond is selling for $476. The bond has a face value of $1,000 and matures in 8 years. Your friend asks you if he should buy the bond. He tells you his required return is 9 percent. Would you recommend he buy the bond or not? Explain your answer.

1. A zero coupon bond is selling for $476. The bond has a face value of $1,000 and matures in 8 years. Your friend asks you if he should buy the bond. He tells you his required return is 9 percent. Would you recommend he buy the bond or not? Explain your answer.

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter6: Saving And Investing

Section6.3: Special Savings Plans And Goals

Problem 5R

See similar textbooks

Related questions

Q: Find out change in stock if closing stock is $60,000 and opening stock is $34,000?

A: According to question we are given closing stocks =$60,000 Opening stock=$34,000 we have to…

Q: Your financial adviser recommends buying a 10-year bond with a face value of $1,000 and an annual…

A: We have Face value of the coupon bond FV =$1000 annual coupon payment (C) =$55 Year of maturity (n)…

Q: 10. The bond has a 30-year maturity, an 8% coupon, and sells at an initial yield to maturity of 8%.…

A: bond's yield is the return to an investor from the bond's coupon (interest) payments. here we…

Q: d coupon of 8% can bé bought at a market price (P) c nat is the yield on the bond (expressed as a…

A: Coupons are regularly depicted as far as the "coupon rate", which is determined by adding the amount…

Q: What's the value to you of a $1,000 face- value bond with an 8% coupon rate when your required rate…

A: A bond is an instrument being issuer to the holders of indebtedness of the bond.

Q: ______________ is a method of measuring the value of a section of the bond

A: In economic, bond market is referred to the place where exchange of bonds take place.

Q: ate paid on similar corporate bonds has decreased to a current rate of 6%/yr/semi (this would be i –…

A: The market value represents the value of a company according to the stock market. It is the price an…

Q: Why is using home equity a risky way to make purchases that do not add to your assets? It's not…

A: Home equity loans make it easier for homeowners to borrow money from equity at home. However, equity…

Q: What type of bond is issued by state and local governments? Is there any risk that state and local…

A: An investor issues a bond to a borrower, such as a company or the government.The funds are used to…

Q: You purchased an annual interest coupon bond one year ago that had nine years remaining to maturity…

A: Number of years of maturity = 8Coupon = 10%*1000 = 100YTM = 8%

Q: A bond has two years to mature. It makes a coupon payment of $100 after one year and both a coupon…

A: The effective yield is the return on a bond that has its interest payments (or coupons) reinvested…

Q: 1. Differentiate inside and outside view in investing. Give a scenario where they are usually…

A: Before investing, investors look up certain possibilities regarding what their investment can yield…

Q: Value a perpetuity that pays £ 2,700 starting in October 2024. Long term rates are 8.3%. The…

A: Value of perpetuity = Payment / Long term rates = 2700/8.3% = 32530.12

Q: The coupon bond pays a coupon of 5% per year, paid semi-annually. It has 3 years to maturity. If the…

A: Yield to Maturity: Yield to maturity (YTM) is the annualized rate of return that an investor can…

Q: Suppose you invested $94 in the Ishares High Yield Fund (HYG) a month ago. It paid a dividend of…

A: Calculation of dividend yield: Dividend = 0.50, stock price = $95 =0.50/95 =0.52%

Q: You decide to purchase a house and need a $160, 000 mortgage. You take out a loan from the bank that…

A: The formula used is: m=p×r1+rn1+rn-1 where m is the monthly payment p is total mortgage amount r is…

Q: Which is the better investment, a fund that pays 5% compounded annually or one that pays 4.8%…

A: Discretely compounded interest is determined and added to the head at explicit spans (e.g., every…

Q: Assume a bond with a remaining maturity of 3 years a. If the face value is $10,000 and coupon…

A: Given Face value of coupon bond FV =$10000 Coupon payment (C)= $500 per year yield to maturity…

Q: If the interest rate is zero, then $100 to be paid in10 years has a present value that isa. less…

A: The present value refers to the today’s value of the future amount that adjusted with the existing…

Q: 1. Consider a coupon bond that has a $1,000 par value and a coupon rate of 9%. The bond is currently…

Q: A coupon bond has two years to maturity, a face value of $1000 and a coupon rate of 2%. The yield to…

A: Given, Par value of bond =$1000 Number of years to maturity = 2 Annual coupon of bond = 2% *1,000…

Q: A $10,000 bond with a coupon rate of 1% and a yield of 2% will pay a yearly interest amount of:

A: Given the bond price = $10000 Coupon rate = 1% Yield = 2%

Q: Fund A has a front-end load of 5.75%. You are considering an investment of $30,000. How much will…

A: front-end load rate = 5.75% Investment = 30,000

Q: what are zero-coupon bonds also called?

A: Answer: A zero-coupon bond is a bond that is sold at a discounted value or lesser value than par. It…

Q: if the market interest rate is equal to 5%, should you buy for 900 euros a coupon zero risk free…

A: We are going to find the terminal value in both alternatives to answer this question.

Q: What is the price of a two year bond with a 9% annual coupon and a yield to maturity of 8%?

A: Given Information : Annual Coupon (C) = 9% Yield to maturity (YTM) = 8% Assume Face value of Bond =…

Q: Which of the following refers to the interest payments of the bond? * A. Coupon Bond B. Present…

A: Interest is defined as the payment made by the borrower to the lender for loans. It can be referred…

Q: 43) Which is a term that would be included in a bond indenture? a) Interest rate b) Dividend c)…

A: Since you have asked multiple questions, we will solve the first question (Q#43) for you. If you…

Q: f you pay $1000 for a $1000 bond that pays annual “coupon interest” equal to 5% and matures in 3…

A: Given bond coupon rate = 5 % Bond face value = 1000 $ Current market value = 1000 $ Time = 3 years

Q: How would I figure this out. The equation I’ve been using for bonds is Y=ai/p Ai for annual interest…

A: One-year interest rate (R) = [C + (F - P) / N] / [(F + P) / 2], where C: Annual coupon = $1,000 x 5%…

Q: Which of the following $1,000 face-value securities has the highest yield to maturity? A) a 5…

A: option A is correct answer

Q: Which of the following bonds pays only the principal amount to the bondholders at the maturity. a.…

A: Bonds: A bond is an instrument or security in the form of fixed investment that represents the…

Q: QUESTION 1 a) Under what conditions that a discount bond has a negative nominal interest rate? Is it…

A: Nominal interest rate is given as the sum of real interest rate and inflation rate. The Nominal…

Q: (Present Value of an Annuity) Why is $10,000 a close approximation of the price of an annuity that…

A: Present Value of an Annuity) Why is $10,000 a close approximation of the price of an annuity that…

Q: An 8 percent coupon bond has a maturity of 6 years. The Bond has a face value of 2,000 and it is…

A: Bond is the financial instrument that firms or organizations raise for selling it to the investors…

Q: 26. If the interest rate is zero, then $1,000 to be paid in 10 years has a present discount value…

A: With Discount or interest rate equals to zero, the present value of the 1000 $ will be same as…

Q: 4. Working with Numbers and Graphs Q4 The face value of a bond is $6,000, and the annual coupon…

A: The coupon rate is the yearly yield on a bond that an investor may anticipate to earn while keeping…

Q: A bond that is currently selling at $1,000 offers to pay $50 annually. What is the percentage rate…

A: Given information - Bond price = $1000 Return = $50

Q: Calculate what you would actually be willing to pay for this bond.

A: The current value of a future sum of money at a given rate of return is called the present value.…

Q: Calculate the current yield on a bond that has an annual interest payment of $200 and a resale price…

A: Bond: It is an instrument of indebtedness of the bond issuer to the bondholder.

Q: A two-year coupon bond has a face value of $1,000, a coupon rate of 5% and a yield to maturity of…

A: Given: Face value (F) = $1000 Coupon rate = 5% Hence, coupon payment = 5/100 × 1000 = $50 Yield to…

Question

11. A zero coupon bond is selling for $476. The bond has a face value of $1,000 and matures
in 8 years. Your friend asks you if he should buy the bond. He tells you his required return is
9 percent. Would you recommend he buy the bond or not? Explain your answer.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Suppose you are committed to owning a $343,000 Ferrari. If you believe your mutual fund can achieve an annual rate of return of 12.9 percent and you want to buy the car in 9 years (on the day you turn 30), how much must you invest today?
Problem 3 An investor bought a discount bond with face value of $1,000 at the price of $870. The bond matures in three years. What is the rate of return? Problem 6 You lend $1,000 today. The borrower promises to return $1,500 in 8 years from now. What is the yield to maturity of this loan?
Beam Inc. Bond's are trading today for a price of 768.54. the bond pays annual coupons with a coupon rate of 2% and the next coupon is due in one year. The bond has a yield to maturity of 4.75%. how many years are there until the bond matures?
14. Tim has a $5000 bond with a 4.6% coupon. Tim purchased this bond for $5195. What is the yield of this new bond? 44% 4.6% 4.8% 4.2%
At 5.2 percent interest, how long does it take to double your money?
A 12 percent semiannual coupon bond matures in 9 years. The bond has a face value of $1,000 and a current yield (CY) of 11.62 percent. What is the bond’s yield to maturity (YTM)? how would I calculate in a BA II PLUS FINANCIAL CALCULATOR. 4
11. The face value of a bond is $10,000, and the annual coupon payment is $850. What is the coupon rate?
Consider a coupon bond that has a $1.000 par value and a coupon rate of 9%. The bond is currently selling for $1,150 and has 9 years to maturity. What is the bond's yield to maturity?
Your bank account pays an interest rate of 8 percent. You are considering buying a share of stock in XYZ Corporation for $110. After 1, 2, and 3 years, it will pay adividend of $5. You expect to sell the stock after 3 years for $120. Is XYZ a good investment? Support your answer with calculations.
A man invests his savings in two accounts, one paying 6 percent and the other paying 10 percent simple interest per year. He puts twice as much in the lower-yielding account because it is less risky. His annual interest is 6534 dollars. How much did he invest at each rate? Your answer is total in the account paying 6 percent interest is total in the account paying 10 percent interest is
K A twenty year bond with a $1000 face value was issued with a yield to maturity of 4.5% and pays coupons semiannually. After ten years, the yield to maturity is still 4.5% and the clean price of the bond is $960.09. After three more months go by, what would you expect the dirty price to be? OA. $1,000.09 OB. $970.09 OC. $980.09 O D. Cannot be determined from information given.
You have $10,000 to invest. Your bank offers the following 10 year CD's. Account 1 offers 6.85% simple interest. Account 2 offers 6.57% compounded annually. a. How much money will you have at the end of 10 years if Account 1 is chosen? s b. How much money will you have at the end of 10 years if Account 2 is chosen?S Account is the better choice.