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azamat
18 days ago
10

A bond has a face value of $1,000, a coupon of 4% paid annually, a maturity of 30 years, and a yield to maturity of 7%. What rat

e of return will be earned by an investor who purchases the bond for $627.73 and holds it for 1 year if the bond’s yield to maturity at the end of the year is 8%?
Business
1 answer:
Scilla [3.2K]18 days ago
4 0

Response:

-11.8%

Clarification:

to resolve this problem, it's important to keep in mind that a bond's worth is primarily determined by figuring out the present value of its cash flow sequence. Therefore, consider a bond in terms of you being the creditor; you would earn interest from the loaned amount (the coupon), and after n years, you'd receive back the initial amount lent (the principal). Applying the relevant formula, we get the value of the bond as follows:

price=\frac{principal*coupon}{(1+i)^{1} }+ \frac{principal*coupon}{(1+i)^{2} } \frac{principal*coupon}{(1+i)^{3} }+...+\frac{principal+principal*coupon}{(1+i)^{n} }

in this specific scenario, there are 29 years left until it matures after one year, thus we have:

price=\frac{1,000*0.04}{(1+0.08)^{1} }+ \frac{1,000*0.04}{(1+0.08)^{2} } \frac{1000*0.04}{(1+0.08)^{3} }+...+\frac{1,000+1,000*0.04}{(1+0.08)^{30} }

price=553.6638

given that the interest rate is higher, the return on the investment is as follows:

return=\frac{553.66}{627.73} -1

return=-11.8\%

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1 month ago
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Mariulka [3175]

Answer:

0.45

Explanation:

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Average total assets are determined by: (Asset at Start + Asset at End) / 2.

Using the given data:

Total revenue = $900,000 and total assets = $2,000,000.

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1 month ago
A Swedish tour guide has devised a clever way for his clients to recognize him. He owns 13 pairs of shoes of the same style, cus
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16 days ago
You buy 50 stocks of Company A, 30 of Company B, and 20 of Company C. The annual returns of these companies are 8%, 12%, and 10%
stepan [3001]

Response:

The yearly average return stands at 9.6 %

Clarification:

Calculating the average return

Assuming the price per share is 100

                                                       Initial    Growth             Final

                                                         Value            %                   Value

Company A  50 % at 100                5,000              8 %                 5,400

Company B 30 % at 100                 3,000              12 %                3,360    

Company C 20 % at 100                  2,000             10 %                2,200

Total amounts                             10,000                                     10,960

To find the average return, take the increase in value over the base, divided by the base

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3 0
22 days ago
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Solution – Division A

Explanation:

Last year's data shows that Division A contributed 60% of total revenue.

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Similarly, Division B generated 40% of total revenue last year.

This means Division B’s income was 0.4x.

For the current year, Division A’s earnings have dropped by 35%.

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Last year’s revenue was 0.4x, so this year it is 0.4x - 0.05(0.4x) = 0.95 * 0.4x = 0.38x.

Comparing both, Division A’s revenue (0.39x) exceeds Division B’s (0.38x) this year.

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