In this problem we are going to calculate bond prices and returns Suppose that the yield on a 3 year note is 2.5%. a) Calculate the price of the 3 year note (face value = $1000) with three annual coupon payments (after year 1, after year 2, after year 3) of $30, i.e., the coupon rate is 3.0%. b) Is this note selling at a discount or premium? Explain. Suppose that after one year and after you receive one coupon payment, you decide to sell your note. Your note is now a two year note with one coupon payment after 1 year and another after year 2. Consider the following two scenarios: Scenario #1 - interest rates on what is now a two year note (i.e., your note) have fallen to 1.00% Scenario #2 - interest rates on what is now a two year note (i.e., your note) have risen to 4% c) given scenan d) Calculate the price that you can sell your note for under scenario #1 and the associated rate of return when you sell your note Calculate the price that you can sell your note for under scenario #2 and the associated rate of return when you sell your not
In this problem we are going to calculate bond prices and returns Suppose that the yield on a 3 year note is 2.5%. a) Calculate the price of the 3 year note (face value = $1000) with three annual coupon payments (after year 1, after year 2, after year 3) of $30, i.e., the coupon rate is 3.0%. b) Is this note selling at a discount or premium? Explain. Suppose that after one year and after you receive one coupon payment, you decide to sell your note. Your note is now a two year note with one coupon payment after 1 year and another after year 2. Consider the following two scenarios: Scenario #1 - interest rates on what is now a two year note (i.e., your note) have fallen to 1.00% Scenario #2 - interest rates on what is now a two year note (i.e., your note) have risen to 4% c) given scenan d) Calculate the price that you can sell your note for under scenario #1 and the associated rate of return when you sell your note Calculate the price that you can sell your note for under scenario #2 and the associated rate of return when you sell your not
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Question
![In this problem we are going to calculate bond prices and returns
Suppose that the yield on a 3 year note is 2.5%.
a)
Calculate the price of the 3 year note (face value = $1000) with three annual coupon payments (after year 1, after year 2, after
year 3) of $30, i.e., the coupon rate is 3.0%.
b)
Is this note selling at a discount or premium? Explain.
Suppose that after one year and after you receive one coupon payment, you decide to sell your note. Your note is now a two year note with
one coupon payment after 1 year and another after year 2. Consider the following two scenarios:
Scenario #1 - interest rates on what is now a two year note (i.e., your note) have fallen to 1.00%
Scenario #2 - interest rates on what is now a two year note (i.e., your note) have risen to 4%
c)
given scenan
d)
Calculate the price that you can sell your note for under scenario #1 and the associated rate of return when you sell your note
Calculate the price that you can sell your note for under scenario #2 and the associated rate of return when you sell your not](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F099b2714-8e4e-4b50-876f-bcd614e0f4ef%2F4b17c101-7cd9-4525-9248-84b808c42ee9%2Fhzbswi6_processed.png&w=3840&q=75)
Transcribed Image Text:In this problem we are going to calculate bond prices and returns
Suppose that the yield on a 3 year note is 2.5%.
a)
Calculate the price of the 3 year note (face value = $1000) with three annual coupon payments (after year 1, after year 2, after
year 3) of $30, i.e., the coupon rate is 3.0%.
b)
Is this note selling at a discount or premium? Explain.
Suppose that after one year and after you receive one coupon payment, you decide to sell your note. Your note is now a two year note with
one coupon payment after 1 year and another after year 2. Consider the following two scenarios:
Scenario #1 - interest rates on what is now a two year note (i.e., your note) have fallen to 1.00%
Scenario #2 - interest rates on what is now a two year note (i.e., your note) have risen to 4%
c)
given scenan
d)
Calculate the price that you can sell your note for under scenario #1 and the associated rate of return when you sell your note
Calculate the price that you can sell your note for under scenario #2 and the associated rate of return when you sell your not
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