Calculate the one year total rate of return for three bonds

Assignment Help Financial Management
Reference no: EM131020193

Currently, the term structure is as follows: One-year bonds yield 7.50%, two-year bonds yield 8.50%, three-year bonds and greater maturity bonds all yield 9.50%. You are choosing between one-, two-, and three-year maturity bonds all paying annual coupons of 8.50%, once a year. You strongly believe that at year-end the yield curve will be flat at 9.50%.

a. Calculate the one year total rate of return for the three bonds. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

One Year   Two Years   Three Years

One year total rate of return   %     %     %

Reference no: EM131020193

Questions Cloud

What are the components of a financial planning model : What two horizons must companies plan for? How long is the short-term? What do the long-term financial planning focus on? Who proposes the capital expenditures and who does the strategic planning? What are three reasons financial plans are done? What..
Determine whether to lease or buy a required fixed asset : What criteria should be considered to determine whether to lease or buy a required fixed asset? Analyze and discuss the upsides and downsides of each option.
Stock have the same expiration date and strike prices : Three put options on a stock have the same expiration date and strike prices of $55, $60, and $65. The market prices are $3, $5, and $8, respectively. Explain how a butterfly spread can be created. Construct a table showing the profit from the strate..
Risk-free rate of interest with continuous compounding : A stock price is currently $50. It is known that at the end of six months it will be either $60 or $42. The risk-free rate of interest with continuous compounding is 12% per annum. Calculate the value of a six-month European call option on the stock ..
Calculate the one year total rate of return for three bonds : Currently, the term structure is as follows: One-year bonds yield 7.50%, two-year bonds yield 8.50%, three-year bonds and greater maturity bonds all yield 9.50%. You are choosing between one-, two-, and three-year maturity bonds all paying annual cou..
Start considering you student loan balance : This is your last semester of school and it is time to start considering you student loan balance. You have borrowed $44,000 with a stated annual rate of 6% for 10 years (monthly payments). Your monthly payments will be? N=? ; i/y=?; PV=?; PMT=? FV=?..
Division of assets during divorce planning : Which of the following is not a relevant factor in a division of assets during divorce planning
Start saving for retirement plan : Your job pays you only once a year for all the work you did over the previous 12 months. Today, December 31, you just received your salary of $69,000 and you plan to spend all of it. However, you want to start saving for retirement beginning next yea..
The expected return on the investors portfolio : Assume an economy in which there are three securities: Stock A with rA = 10% and σA = 10%; Stock B with rB = 15% and σB = 20%; and a riskless asset with rRF = 7%. Stocks A and B are perfectly negativly correlated (rAB = -1). The expected return on th..

Reviews

Write a Review

 

Financial Management Questions & Answers

  Portfolio weights will decrease for the stocks in portfolio

Without trading, the portfolio weights will decrease for the stocks in the portfolio whose returns are above the overall portfolio return.The expected return of a portfolio is simply the weighted average of the expected returns of the investments wit..

  The recapture of net working capital at the end of project

The recapture of net working capital at the end of a project will __________

  Cost of capital-acceptable rate of return on an investment

Rank the following from lowest to highest interest rate: cost of capital, acceptable rate of return on an investment, minimum attractive rate of return, rate of return on a safe investment.

  Growing rapidly and has strong prospects

The company you cofounded last year is growing rapidly and has strong prospects for an IPO in the next year or two. The additional capital that an IPO could raise would let you hire the brightest people in the industry and continue to innovate with n..

  Operating-maintenance expenses for mining matching

The operating and maintenance expenses for a mining matching are expected to be $11,000 in the first year and increase by $800 per year during the 15-year life of the machine. What uniform series of payments would cover these expenses over the life o..

  Issued bonds-what is the current yield on the bond

Wal-Mart has issued bonds with 7 years to maturity, a 7.5% coupon rate (paid semi annually), and $1,000 face value. If the price of the bond is $750, what is the current yield on the bond?

  Compute the unit sales price at which blake must sell

Compute the unit sales price at which Blake must sell its product in the current year in order to earn a budgeted target profit of £200,000 - Calculate a value in response - Unhappy about the prospect of a price increase, Blake's sales manager woul..

  According to the residual distribution model

The Wei Corporation expects next year's net income to be $20 million. The firm's debt ratio is currently 40%. Wei has $15 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual dis..

  Find total profit if your position is long call in options

Find the total profit if your position is Long Call in options. The price per share at expiration is $53. All calls and puts are lots of 100 shares. Prices and premiums are per share. Position: Long Call Strike Price: $50 Premium paid: $2.50 Profit =..

  The amount of money that would be in the account

The amount of money that would be in the account if you left the money there until your 65th birthday is closest to:

  Narrative information of the subject being covered

Reports should cover some very specific information relating to the general subject matter of the course and to the subject area of the individual class session. Narrative information of the subject being covered (the story). Quantitative information..

  The loan calls for equal monthly payments

You borrow $50,000 5 year loan to make renovations to a house. The interest rate on this loan is 8% per year. The loan calls for equal monthly payments. What is the monthly payment on this loan?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd