Chapter 14 1. You purchased a zero-coupon bond that has a face value of R1 000, six years to maturity, and a yield to maturity of 7%. It is one year later and similar bonds are offering a yield to maturity of 7.75%. You will sell the bond now. You have a tax rate of 28% on regular income and 20% on capital gains. Calculate the following for this bond. 1.1 The purchase price of the bond 1.2 The current price of the bond 1.3 The imputed interest income 1.4 The capital gain (or loss) on the bond 1.5 The before-tax rate of return on this investment 1.6 The after-tax rate of return on this investment Chapter 15 2. Assume that a 1-year zero-coupon bond with face value R1 000 currently sells at R890.00, while a 2-year zero sells at R736.50. You are considering the purchase of a 2year maturity bond making annual coupon payments. The face value of the bond is R1 000 and the coupon rate is 6.5% per year. 2.12.22.32.42.52.62.7Chapter16CalculatCalculatCalculaCalculatIfthebondIfthecouponIfyouorlower 3. You have purchased a bond for R957.90. The bond has a coupon rate of 6%, pays interest annually, has a face value of R1000,4 years to maturity, and a yield to maturity of 7.25%. The bond's duration is 3.6481 years. You expect that interest rates will increase by 0.25% later today. 3.1 Calculate the approximate percentage change in the bond's price using the modified duration. 3.2 Find the new price of the bond from this calculation. 3.3 Use your calculator to do the regular present-value calculations to find the bond's new price at its new yield to maturity. 3.4 What is the amount of the difference between the two answers? Why are your answers different? 2. Assume that a 1-year zero-coupon bond with face value R1 000 currently sells at R890.00, while a 2-year zero sells at R736.50. You are considering the purchase of a 2 year maturity bond making annual coupon payments. The face value of the bond is R1 000 and the coupon rate is 6.5% per year. 2.1 Caiculate the yield to maturity (YTM) of the 1-year zero. 2.2 Calculate the yield to maturity (YTM) of the 2-year zero. 2.3 Calculate the yield to maturity (YTM) of the 2-year coupon bond. 2.4 Calculate the forward rate for the second year. (2) (5) 2.5 If the expectations hypothesis is accepted, determine the expected price of the coupon bond at the end of the first year. (2) 2.6 If the expectations hypothesis is accepted, determine the holding period return on the coupon bond over the first year. 2.7 If you accept the liquidity preference hypothesis, will the expected rate of return by higher or lower