CH 6 Drill Say you own an asset that had a total return last year of 16 percent.
ID: 2779275 • Letter: C
Question
CH 6 Drill
Say you own an asset that had a total return last year of 16 percent. Assume the inflation rate last year was 4.2 percent.
What was your real return? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
2.
You purchase a bond with an invoice price of $1,150. The bond has a coupon rate of 11 percent, semiannual coupons, and there are three months to the next coupon date.
What is the clean price of the bond?
3.
The Timberlake-Jackson Wardrobe Co. has 11.5 percent coupon bonds on the market with nine years left to maturity. The bonds make annual payments.
If the bond currently sells for $1,136.78, what is its YTM?
4.
If Treasury bills are currently paying 5.75 percent and the inflation rate is 2.8 percent, what is the approximate and the exact real rate of interest? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Required:What was your real return? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
2.
You purchase a bond with an invoice price of $1,150. The bond has a coupon rate of 11 percent, semiannual coupons, and there are three months to the next coupon date.
Required:What is the clean price of the bond?
3.
The Timberlake-Jackson Wardrobe Co. has 11.5 percent coupon bonds on the market with nine years left to maturity. The bonds make annual payments.
Required:If the bond currently sells for $1,136.78, what is its YTM?
4.
If Treasury bills are currently paying 5.75 percent and the inflation rate is 2.8 percent, what is the approximate and the exact real rate of interest? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Approximate_______________ % Exact_______________________ %Explanation / Answer
1.The Fisher equation, which shows the exact relationship between nominal interest rates, real interest rates, and inflation is:
(1 + R) = (1 + r)(1 + h)
r = [(1 + .16) / (1+ .042)] – 1 = .1132 or 11.32%
2. Dirty Price = Invoice Price = 1150
Accrued Interest = Coupon *days from last coupon payment / days in coupon period
= (0.11*0.5 *1000) * 90/180
= 27.5
Clean Price = Dirty price - accrued interest
= 1150 - 27.5
=1122.5
3.
PMT = 0.115*1000 = 115
FV = 1000
T = 9
PV = 1136.78
Using financial calculator, YTM = 9.2%
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.