Questions from General Investment

Q: Assume you have a 1-year investment horizon and are trying

Assume you have a 1-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 $1,00...

Q: A 20-year maturity bond with par value of $1

A 20-year maturity bond with par value of $1,000 makes semiannual coupon payments at a coupon rate of 8%. Find the bond equivalent and effective annual yield to maturity of the bond if the bond price...

Q: Repeat Problem 11 using the same data, but now assume that

Repeat Problem 11 using the same data, but now assume that the bond makes its coupon payments annually. Why are the yields you compute lower in this case? Problem 11: A 20-year maturity bond with pa...

Q: Consider a bond paying a coupon rate of 10% per year

Consider a bond paying a coupon rate of 10% per year semiannually when the market interest rate is only 4% per half-year. The bond has three years until maturity. a. Find the bond’s price today and si...

Q: A newly issued 10-year maturity, 4% coupon bond

A newly issued 10-year maturity, 4% coupon bond making annual coupon payments is sold to the public at a price of $800. What will be an investor’s taxable income from the bond over the coming year? Th...

Q: A 30-year maturity, 7% coupon bond paying coupons

A 30-year maturity, 7% coupon bond paying coupons semiannually is callable in five years at a call price of $1,100. The bond currently sells at a yield to maturity of 6% (3% per half-year). a. What is...

Q: A 2-year bond with par value $1,000

A 2-year bond with par value $1,000 making annual coupon payments of $100 is priced at $1,000. What is the yield to maturity of the bond? What will be the realized compound yield to maturity if the 1-...

Q: Karen Kay, a portfolio manager at Collins Asset Management, is

Karen Kay, a portfolio manager at Collins Asset Management, is using the capital asset pricing model for making recommendations to her clients. Her research department has developed the information sh...

Q: Assume that two firms issue bonds with the following characteristics. Both

Assume that two firms issue bonds with the following characteristics. Both bonds are issued at par. Ignoring credit quality, identify four features of these issues that might account for the lower cou...

Q: An investor believes that a bond may temporarily increase in credit risk

An investor believes that a bond may temporarily increase in credit risk. Which of the following would be the most liquid method of exploiting this? a. The purchase of a credit default swap. b. The sa...