Based on extensive analysis of market interest rates

Assignment Help Financial Management

Reference no: EM13943237

It is now the beginning of a year. Jared is considering the purchase of a 7.5 percent (coupon rate), 15-year bond that is presently priced to yield 11 percent (i.e. market interest rate is 11 percent). Based on extensive analysis of market interest rates, he thinks rates will fall so that at the end of this year the market yield of this issue will drop to 9 percent. If his expectations are correct, what kind of realized return will Jared earn by purchasing the bond today and selling the bond at the end of the year? (Assuming annual interest payments)

a) 26.74%

b) 18.03%

c) 25.07%

d) 28.05%

e) 23.95%

Reference no: EM13943237

Questions Cloud

Moderate levels of operating leverage and business risk : Assume that your firm has moderate levels of operating leverage and business risk. Your factories are dependent upon a lot of low-wage earners that come and go frequently and thus are considered a somewhat variable cost. You expect the next several y..

No corporate tax-what is cost of equity capital : Crosby Industries has a debt-equity ratio of 1.5. Its WACC is 11 percent, and its cost of debt is 8 percent. There is no corporate tax. What is Crosby’s cost of equity capital? What would the cost of equity be if the debt-equity ratio were 0.7?

Shares in an initial public offering : Pearson, Inc. is offering 40,000 shares in an initial public offering. The underwriters have agreed upon a best efforts offering with an offer price of $25 and a 7 percent spread. The underwriters were able to sell 28,500 shares to the general public..

Audit evidence process and strategic planning : In what possible ways can an IT auditor collect audit evidence in order to express opinions? List three (3) different techniques for project scheduling. What are computer-assisted audit solutions?

Based on extensive analysis of market interest rates : It is now the beginning of a year. Jared is considering the purchase of a 7.5 percent (coupon rate), 15-year bond that is presently priced to yield 11 percent (i.e. market interest rate is 11 percent). Based on extensive analysis of market interest r..

Local currency fluctuations against the us dollar : Demonstrate your local currency fluctuations against the US dollar and national export import value of your country for the last five years at least in the forms of tables and figures.

What is the current price of the common stock : Church Inc. is presently enjoying relatively high growth because of a surge in the demand for its new product. Management expects earnings and dividends to grow at a rate of 25% for the next 4 years, after which competition will probably reduce the g..

Compute the tax consequence : Three-year property class type equipment bought for $30,000 is being disposed of $20,000 at the end of three years. The company is at a 34% tax bracket. Compute the tax consequence, if any for this equipment.

Computing the present value of the firms free cash flow : The more cash the firm uses to repurchase shares, the less it has available to pay dividends. Free cash flow measures the cash generated by the firm after payments to debt or equity holders are considered. We estimate a firm's current enterprise valu..

User Account

All Pages