Coupon bond properly priced

Assignment Help Financial Management

Reference no: EM13732311

A 7% annual coupon bond (face value $1,000), with three years left till maturity is selling for $986.90. Zero-coupon bonds of 1, 2, 3 years maturity (all with face value of $1,000) sell for $950, $900, $820, respectively. Is this coupon bond properly priced? If not, show an arbitrage transaction to profit $2000 (today) from the mispricing.

Reference no: EM13732311

Questions Cloud

Calculate for each bond the percentage price change : A zero-coupon bond with 2.5 years to maturity has a yield to maturity of 25% per annum. A 3-year maturity annual-pay coupon bond has a face value of $1000 and a 25% coupon rate. The coupon bond also has a yield to maturity of 25%. Does the longer mat..

What is the price of the coupon bond and its YTM : Prices of zero-coupon bonds reveal the following pattern of forward rates: 0f1 = y1 = 5%, 1f1 = 7%, 2f1 = 8%. In addition to the zero coupon bonds, investors also may purchase a 3-year bond making annual coupon payments of $60 with par value of $1,00..

What is the bonds price and what is the bonds duration : A 5-year bond with YTM of 12% and par value of $1000 pays an 8% annual coupon. What is the bond’s price? What is the bond’s duration?

Calculate the amount of the firms after tax cash flow : Moby Dick Corporation has sales of $4,635,480 income tax of $400,651; the selling general and administrative expenses of $294,228; depreciation of $395,852; cost of goods of $2,543,550; and interest expense of $188,723. Calculate the amount of the fi..

Coupon bond properly priced : A 7% annual coupon bond (face value $1,000), with three years left till maturity is selling for $986.90. Zero-coupon bonds of 1, 2, 3 years maturity (all with face value of $1,000) sell for $950, $900, $820, respectively. Is this coupon bond properly..

What is the realized compound yield from the bond : You have just bought a 5 year 10% annual coupon bond with a par value of $1000 at a price of $963.04. Immediately after you bought the bond, the market interest rate changed to 8% per year. If the interest rate does not change from this level for the..

Consider a bond paying a coupon rate : Consider a bond paying a coupon rate of 8% per year annually when the market interest rate is 6% per year. The bond has six years until maturity and its par value is $1000. What are the bond’s price today (P0), its price 1 year from now after the nex..

The consensus forecast of security analysts : Suppose that the consensus forecast of security analysts of your favourite company is that earnings next year will be E1 = $5.00 per share. Suppose that the company tends to plow back 50% of its earnings and pay the rest as dividends.

What is the amount of the firms net working capital : Scare Train, Inc. has the following balance sheet statement items: current liabilities of $780,940; net fixed and other assets of $1,537,030; total assets of $3,424,010; and long term debt of $676,468. What is the amount of the firms’ net working cap..

User Account

All Pages