1)You purchase a $1,000 par value, 6% annual coupon rate bond for the price of $
ID: 2769092 • Letter: 1
Question
1)You purchase a $1,000 par value, 6% annual coupon rate bond for the price of $960 on 4/26/2016. The most recent interest payment was on 12/01/2015 and the next interest payment is scheduled for 06/01/2016. What is the total amount you must pay for the bond?
2) Assume that in recent years both expected inflation and the market risk premium have increased. Assume also that all stocks have positive betas. Which of the following would be most likely to have occurred as a result of these changes?
A) the requiered return on all stocks have fallen, but the fall has been geater for stock with high betas
b) the requered retruns on all stocks have fallen but the fall has been greater for stock with lower betas
C) the requiered retrun on all stocks have increased but the increase has been graater for stock with higher betas
D) requiered retrun have increased for stocks with betas greater than 1.0 but have dclined for socks with betas less than 1.0
Explanation / Answer
1)
Total payment for bond = Clean price+Accrued interest
= $960+$1,000×6%×104/365
= $977.10
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