Student: Date: Instructor: A. Da Silva Course: Fin320Da SilvaFall 2020 Assignment: ExtraCredit1 1. Your company currently has $1,000 par, 6.5% coupon bonds with 10 years to maturity and a price of $1,090. If you want to issue new 10-year coupon bonds at par, what coupon rate do you need to set? Assume that for both bonds, the next coupon payment is due in exactly six months. Review Only Click the icon to see the Worked Solution (Formula Solution). Click the icon to see the Worked Solution (Financial Calculator and Spreadsheet Solution). You need to set a coupon rate of %. (Round to two decimal places.) 2. Suppose you purchase a 10-year bond with 6.5% annual coupons. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 5.1% when you purchased and sold the bond, a. What cash flows will you pay and receive from your investment in the bond per $100 face value? b. What is the annual rate of return of your investment? Review Only Click the icon to see the Worked Solution (Formula Solution). Click the icon to see the worked Solution (Financial Calculator and Spreadsheet Solution). a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flows from the investment are shown in the following timeline: (Round to the best choice below.) O A. Year 0 1 2 3 Cash Flows -$113.58 $6.50 $6.50 $6.50 $107.08 OB. Year 0 1 2 3 4 Cash Flows $110.76 $6.50 $6.50 $6.50 $113.58 O C. Year 0 2 3 4 Cash Flows $107.08 $6.50 $6.50 $6.50 $113.58 OD. Year 0 1 2 3 4 Cash Flows - $110.76 $6.50 $6.50 $6.50 $113.58 b. What is the annual rate of return of your investment? The annual rate of return of your investment is %. (Round to one decimal place.) 2. Suppose you purchase a 10-year bond with 6.5% annual coupons. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 5.1% when you purchased and sold the bond, a. What cash flows will you pay and receive from your investment in the bond per $100 face value? b. What is the annual rate of return of your investment? Review Only Click the icon to see the Worked Solution (Formula Solution). Click the icon to see the worked Solution (Financial Calculator and Spreadsheet Solution). a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flows from the investment are shown in the following timeline: (Round to the best choice below.) O A. Year 0 1 2 3 Cash Flows -$113.58 $6.50 $6.50 $6.50 $107.08 OB. Year 0 1 2 3 4 Cash Flows $110.76 $6.50 $6.50 $6.50 $113.58 O C. Year 0 2 3 4 Cash Flows $107.08 $6.50 $6.50 $6.50 $113.58 OD. Year 0 1 2 3 4 Cash Flows - $110.76 $6.50 $6.50 $6.50 $113.58 b. What is the annual rate of return of your investment? The annual rate of return of your investment is %. (Round to one decimal place.)
