What is your before-tax holding period return on bond

Assignment Help Financial Management
Reference no: EM131522497

Assume you have a one-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 8% coupon rate and pays the $80 coupon once per year. The third has a 10% coupon rate and pays the $100 coupon once per year.

a. If all three bonds are now priced to yield 8% to maturity, what are their prices?

b. If you expect their yields to maturity to be 8% at the beginning of next year, what will their prices be then? what is your before-tax holding period return on each bond? if your tax bracket is 30% on ordinary income and 20% on capital gains income, what will your after-tax rate of return be on each?

c. Recalculate your answer to (b) under the same assumption that you expect the yields to maturity on each bond to be 7% at the beginning of next year?

Reference no: EM131522497

Questions Cloud

What are common preparation mistakes sellers make : What are the common preparation mistakes sellers make in preparing to sell their company?
Can current yield be less than yield to maturity : Define is entrepreneurship? Who is an entrepreneur? Identify 8 characteristics of an entrepreneur. Can current yield be less than yield to maturity?
Create a presentation to outline your proposal to meet the : Create a presentation to outline your proposal to meet the case study requirements. Identify the purpose and audience (the Director) for your presentation. The purpose of this presentation is to present the hardware and software solution for a decisi..
What steps should you take in planning the program : Assuming your needs assessment indicates a need for training, how would you plan a training program? What steps should you take in planning the program?
What is your before-tax holding period return on bond : If you expect yields to maturity to be 8% at beginning of next year, what will their prices be then? what is your before-tax holding period return on bond?
What constant rate is stock expected to grow after year : At what constant rate is the stock expected to grow after Year 3?
Bond certificate indicates that the stated coupon rate : The bond certificate indicates that the stated coupon rate for this bond is 8.6?% and that the coupon payments are to be made semiannually.
Construct an effective portfolio : Discuss portfolio of equity securities. Demonstrate the essential knowledge and interpersonal skills to work effectively in a team.
Approximate expected price of stock when dividends : What would be the approximate expected price of a stock when dividends are expected to grow at 20% for the next 3 years, then grow at a constant rate of 7%,

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd