Reference no: EM132531315

Please help me with question 2 3 4 6. (Thank you in advance)! 1.) Define the following terms

· Coupon rate: annual coupon payments paid by the issuer relative to the bond's face or par value. Other definition: periodic cash flow a bond issuer contractually promises to pay a bond holder.

· Required rate of return (r): is the minimum return an investor will accept for owning a company's stock, as compensation for a given level of risk associated with holding the stock Other definition: rates used by individual market participants to calculate fair present values (PV)

· Expected rate of return or E(r): rates participants expect to earn by buying securities at current market prices (P)

· Realized rate of return (r): interest rate actually earned on investments

2.) What does it mean for a bond to sell at a premium?

3.) What does it mean for a bond to sell at a discount?

4.) What does it mean for a bond to sell at par?

5.) You have a bond with a 5% coupon, 10 years to maturity and a Yield to Maturity of 4.75%. What is the dollar value of the bond?

Answer: Dollar Value of the Bond

Face Value of the bond = $1,000

Annual Coupon Amount = $50 [$1,000 x 5%]

Yield to Maturity of the Bond = 4.75%

Maturity Period = 10 Years

The Price of the Bond = Present Value of the Coupon Payments + Present Value of the face Value

= $50[PVIFA 4.75%, 10 Years] + $1,000[PVIF 4.75%, 10 Years]

= [$50 x 7.81635] + [$1,000 x 0.62872]

= $390.82 + $628.72

= $1,019.54

"Hence, the Dollar Value of the Bond will be $1,019.54"

6.) What is duration? What does it measure?

Answer: help me answer what is duration, please.

Duration measures the sensitivity of the bond to the yields of the bond.