Explain why yield is different than the yield to maturity

Assignment Help Financial Management

Reference no: EM132018678

1. Suppose that you bought a 14% Drexler bond with time to maturity of 9 years for $1,379.75 (semiannual coupons, interest rate=8%). After another ½ year, you sold the bond.

a. Assuming that the required rate of return remained at 8%, what would the selling price be? What is the rate of return from this investment?

b. Assuming that the required rate of return decreased to 7.5%, what would the selling price be? What is the rate of return from this investment?

2. Consider a five-year bond paying 10 percent coupon annually. The bond is priced at $1,200.

a. Find the yield to maturity.

b. Find the realized yield, assuming that coupons are reinvested at the yield to maturity.

c. Find the realized yield, assuming that coupons are reinvested at the following rates: r0=9%, r1=9.5%, r2=10%, r3=10.5%, r4=11%, r5=11.5%.

d. Refer to part (c). Explain why the yield is different than the yield to maturity.

3. An 8 1/2 30-year US corporate bond is callable in 12 years. It is currently sold at a price of $960. The call premium is 10 percent. The prevailing market interest rate at the call date is 8 percent.

a. What is the yield to call to an investor who does not reinvest the call price at the prevailing interest rate at the call date?

b. What is the yield to call to an investor who reinvests the call price at the prevailing interest rate at the call date?

4. Consider a 90-day Treasury bill whose price is 94.5%.

a. Find the yield on a discount basis.

b. Find the yield on a coupon equivalent basis. c. Find the effective yield.

Reference no: EM132018678

Questions Cloud

Calculate sustainable growth rate for webb : Calculate the sustainable growth rate for Webb.

What is the amount of suspended losses : What is their AGI for the year? What is the amount of suspended losses, if any, that may be carried over with respect to each activity

Make business proposal as a group : For my comunications class we have to make a Business Proposal as a group.

What is your net new financing needed for next year : For the next fiscal year, you forecast net income of $51, 500 and ending assets of $506, 100. Your firm's payout ratio is 9.7%. Your beginning stockholders'.

Explain why yield is different than the yield to maturity : Find the realized yield, assuming that coupons are reinvested at the yield to maturity. Explain why the yield is different than the yield to maturity.

Research current events related to course topics : Your instructor will compile your slide with your peers'slides to present various examples of how course topics directly relate to events in the media.

The first year the project can be dismantled : If unsuccessful, after the first year the project can be dismantled and will have an aftertax salvage value of $11.2 million.

What are the direct labor costs for the period : Prime costs totaled $8,000. Conversion costs totaled $11,350. What are the direct labor costs for the period

Expected return and the standard deviation of portfolio : What is the expected return and the standard deviation of a portfolio consisting of 80% Stock X and 20% Stock Z?

User Account

All Pages