10-22I
Expert-verifiedA bond with a coupon rate of 7% makes semi-annual coupon payments on January 15 and July 15 of each year. The Wall Street Journal reports the ask price for the bond on January 30 at 100:02. What is the invoice price of the bond? The coupon period has 182 days.
The invoice price of the bond is $ 1004.13.
The reported bond price = 100: 2/32 percent of par = $1001.25
Accrued interest for last 15 days = Annual coupon payment / 2 x Day’s since last coupon payment / Day’s separating coupon payment
= $ 35 x (15/182)
= $2.8846
The invoice price = the reported price + accrued interest
= $10001.25 + $ 2.8846
= $ 1004.13
A convertible bond has the following features:
Coupon | 5.25% |
Maturity | June 15, 2020 |
Market price of bond | $77.50 |
Market price of underlying common stock | $28.00 |
Annual Dividend | $1.20 |
Conversion ratio | 20.83 shares |
Calculate the conversion premium for this bond.
Question: The current yield curve for default-free zero-coupon bonds is as follows:
Maturity (Years) | YTM |
1 | 10% |
2 | 11% |
3 | 12% |
a. What are the implied one-year forward rates?
b. Assume that the pure expectations hypothesis of the term structure is correct. If market expectations are accurate, what will the pure yield curve (that is, the yields to maturity on one- and two-year zero-coupon bonds) be next year?
c. If you purchase a two-year zero-coupon bond now, what is the expected total rate of return over the next year? What if you purchase a three-year zero-coupon bond?
(Hint: Compute the current and expected future prices.) Ignore taxes.
94% of StudySmarter users get better grades.
Sign up for free