Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A $ 1 , 0 0 0 par value bond was issued 3 0 years ago at a 1 2 percent coupon rate. It currently

A $1,000 par value bond was issued 30 years ago at a 12 percent coupon rate. It currently has 25 years remaining to maturity. Interest rates on similar obligations are now 8 percent. Assume Ms. Bright bought the bond three years ago when it had a price of $1,005. 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.
What is the current price of the bond? Use Table 16-2.
Note: Input your answer to 2 decimal places.
What is her dollar profit based on the bonds current price?
Note: Do not round interm ediate calculations and round your answer to 2 decimal places.
How much of the purchase price of $1,005 did Ms. Bright pay in cash?
Note: Do not round intermediate calculations and round your answer to 2 decimal places.
What is Ms. Brights 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.

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

Step: 3

blur-text-image

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

Theoretical Foundations For Quantitative Finance

Authors: Luca Spadafora, Gennady P Berman

1st Edition

9813202475, 978-9813202474

More Books

Students also viewed these Finance questions

Question

social security tax

Answered: 1 week ago

Question

The models used to analyse different national cultures.

Answered: 1 week ago

Question

The nature of the issues associated with expatriate employment.

Answered: 1 week ago