What are the hprs for the three bonds

Reference no: EM131935751

Assignment: Horizon Analysis of Bonds

You want to make a 5-year investment on bonds, and if you buy bonds with longer period of maturity, they will be sold at the prevailing market price at the end of the fifth year. All coupons will be reinvested. You forecast that the rates are going to change after you purchase the bonds.

Now you have three bonds with same initial YTM to consider: A. 5-year maturity, 6% coupon paid annually, YTM=9%
B. 10-year maturity, 8% coupon paid annually, YTM=9%
C. 15-year maturity, 4% coupon paid annually, YTM=9%

To pick the best one, you want to calculate the following:
1) What are the current prices of three bonds based on the initial YTM given?

2) If the coupon payments are reinvested at the prevailing market rate (7% for the coming 5 years), what are the future values (at the end of the fifth year) of all five coupon payments for three bonds respectively?

3) What are the selling prices of three bonds at the end of the fifth year, given that the prevailing market rate is 8% at that time?
(For bond A, use its par value as the final selling price, as it will mature in 5 years).

4) What are the HPRs for the three bonds?

5) What's your recommendation?

Reference no: EM131935751

Questions Cloud

Prepare journal entries to record the march transactions : Prepare journal entries to record the March transactions in the General Journal below. Remember that Debits must equal Credits.

Find equivalent annual compounded interest rate it generated : Assume that 10 years ago you invested $1000 in a Treasury Bond. Today you are offered $2000 for the bonds. What is the equivalent annual compounded interest.

Which of these facts can be explained by expectation theory : List three empirical facts about the term structural of interest rates. Which of these facts can be explained by the Expectation Theory?

Public health care system : Although Canada has universal health care, there are some health services that are not covered through the public health care system.

What are the hprs for the three bonds : You want to make a 5-year investment on bonds, and if you buy bonds with longer period of maturity, they will be sold at the prevailing market price at the end.

Real scenario of project management : How can apply these 10 terms manager use to a real scenario of project management. The application can be to any project of your choice that is meaningful

What is the expected exchange rate : Assume $1 is currently equal to £.6211. Also assume the expected inflation rate in the U.K. is 2.6 percent while it is 4.3 percent in the U.S.

Subject of a motivational strategy : Have you ever been the subject of a motivational strategy that just seemed useless to you? Describe it and tell why you think it was ineffective

Making retail patronage and buying decisions : Describe the process that consumers go through when making retail patronage and buying decisions. Identify the different types of buying processes.

User Account

All Pages