Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A $ 1 , 0 0 0 par value bond was issued 2 0 years ago at a 1 2 percent coupon rate. It currently

A $1,000 par value bond was issued 20 years ago at a 12 percent coupon rate. It currently has 15 years remaining to maturity. Interest rates on similar obligations are now 10 percent. Assume Ms. Bright bought the bond three years ago when it had a price of $1,030. Further assume Ms. Bright paid 20 percent of the purchase price in cash and borrowed the rest (known as buying on margin). She used the interest payments from the bond to cover the interest costs on the loan.
a. What is the current price of the bond? Use Table 16-2.
Note: Input your answer to 2 decimal places.
Price of the bond
b. What is her dollar profit based on the bond's current price?
Note: Do not round interm ediate calculations and round your answer to 2 decimal places.
Dollar profit
c. How much of the purchase price of $1,030 did Ms. Bright pay in cash?
Note: Do not round intermediate calculations and round your answer to 2 decimal places.
Purchase price paid in cash
d. What is Ms. Bright's percentage return on her cash investment? Divide the answer to part b by the answer to part c.
Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.
Percentage return
%
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management Theory And Practice

Authors: Prasanna Chandra

8th Edition

0071078401, 978-0071078405

More Books

Students also viewed these Finance questions

Question

What were your most important educational experiences?

Answered: 1 week ago

Question

Which personal relationships influenced you the most?

Answered: 1 week ago