A savvy investor paid $6,500 for a 20-year $10,000 mortgage bond that had a bond interest rate of 6% per year, payable quarterly. Three years after he purchased the bond, market interest rates went down, so the bond increased in value. If the investor sold the bond for $11,000 three years after he bought it, what rate of return did the investor make per quarter and per year (nominal)? The rate of return per quarter is The rate of return per year is %. %.

A savvy investor paid $6,500 for a 20-year $10,000 mortgage bond that had a bond interest rate of 6% per year, payable quarterly. Three years after he purchased the bond, market interest rates went down, so the bond increased in value. If the investor sold the bond for $11,000 three years after he bought it, what rate of return did the investor make per quarter and per year (nominal)? The rate of return per quarter is The rate of return per year is %. %.

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

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Please assist with the following question below with handwritten working: An investor purchased a bond that pays $5 coupons annually at the end of every year for five years. The purchase price was $100 and it was redeemed at par after five years. If the annual effective inflation rate over the time period was 3%, calculate the real rate of return earned by the investor on this bond.
You buy a bond that pays annual interest payments of 7% of the bond’s face value of $1000. You initially pay $950 for the bond. You receive an annual interest payment after one year, then sell the bond for $880. What is your total rate of return on the investment, expressed as a percentage of the purchase price?
You purchased a bond at a price of $800. In 15 years when the bond matures, the bond will be worth $5,000. It is exactly 8 years after you purchased the bond and you can sell the bond today for $3,300. If you hold the bond until it matures, what annual rate of return will you earn from today?
An investor buys a discount bond that pays him $75,000 after 6 years. The nominal interest rate for the first year is 6% and it decreases by 90 basis points (100 basis points 1%) up to the third year and then increases by 75 basis points thereafter, due to changes in government policy. If the investor sells his policy in four years to a businessman, what will be the yield to maturity and price for the businessman, assuming that the expectations hypothesis holds? The price of the bond at the fourth year-S Yield to maturity for the businessman during the purchase=% (Round your answer to two decimal places.)
You are considering purchasing a bond. The bond will pay you $100 at the end of each year for three years. At the end of the third year, the bond will also pay you back its $1,000 face value. Assuming a 10% discount rate, how much is this bond worth today? Round to the nearest dollar. I am having trouble calculating how much this bond is worth today. Thank you!
An investor buys a discount bond that pays him $65,000 after 6 years. The nominal interest rate for the first year is 5% and it decreases by 90 basis points (100 basis points=1%) up to the third yea and then increases by 75 basis points thereafter, due to changes in government policy. If the investor sells his policy in four years to a businessman, what will be the yield to maturity and price for the businessman, assuming that the expectations hypothesis holds? The price of the bond at the fourth year $ Vield to maturity for the businessman during the purchase=% (Round your answer to two decimal places) Suppose that, for the same bond the yield to maturity at the third year is 6.55% and there is a constant risk premium (x) applicable for holding the bond. What will be the value of ? *-% (Round your answer to two decimal places)
Suppose the government decides to issue a new savings bond that is guaranteed to double in value if you hold it for 18 years. Assume you purchase a bond that costs $100. a. What is the exact rate of return you would earn if you held the bond for 18 years until it doubled in value? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If you purchased the bond for $100 in 2020 at the then current interest rate of .22 percent year, how much would the bond be worth in 2028? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. In 2028, instead of cashing in the bond for its then current value, you decide to hold the bond until it doubles in face value in 2038. What annual rate of return will you earn over the last 10 years?
Suppose you purchase a 10-year bond with 6% annual coupons. You hold the bond for four years and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 4.01% when you purchased and sold the bond, a. What cash flows will you pay and receive from your investment in the bond per $100 face value? b. What is the internal rate of return of your investment? Note: Assume annual compounding. The cash flow at time 1-3 is $ (Round to the nearest cent. Enter a cash outflow as a negative number.) (Round to the nearest cent. Enter a cash outflow as a negative number.) The cash outflow at time 0 is $ The total cash flow at time 4 (after the fourth coupon) is $ negative number.) b. What is the internal rate of return of your investment? (Round to the nearest cent. Enter a cash outflow as a
An investor is considering the purchase of a bond. The bond has a face value of $1000 and an interest rate of 6%; it pays interest once a year and matures in 8 years. This investor’s real MARR is 25%. If the investor expects an inflation rate of 4% per year for the next 8 years, how much should he be willing to pay for the bond?
If you purchased a bond one year ago for $1000 and just sold it for $1100 after receiving the $50 annual coupon payment, then what was your real return on the investment if theinflation rate was 2.1% for the same year?
An investor has purchased a 20-year bond with a nominal value of 1000 TL, an annual coupon interest rate of 10% and a commitment to pay coupon interest annually. The investor paid 850 TL for this bond. The annual interest rates in the market today are 12%. The investor sold the bond 2 years after receiving it when the interest rate on the market is 8%. Calculate the rate of return of the investor from this investment. Calculate what the rate of return would be if the investor sold this bond in the 3rd year. Consider that the market rate will be stable for upcoming years as 12%. Calculate the value of the bond in the 5th, 6th and 10th years. 11 years have passed since the receipt of the bond, and the market interest rates increased to 18%. Calculate the new value of this bond.
Suppose the government decides to issue a new savings bond that is guaranteed to double in value if you hold it for 24 years. Assume you purchase a bond that costs $25. a. What is the exact rate of return you would earn if you held the bond for 24 years until it doubled in value? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If you purchased the bond for $25 in 2020 at the then current interest rate of .15 percent year, how much would the bond be worth in 2031? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. In 2031, instead of cashing in the bond for its then current value, you decide to hold the bond until it doubles in face value in 2044. What annual rate of return will you earn over the last 13 years? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Rate of return b. Bond value c. Rate…

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