8. You have just received an inheritance of $20,000. You wish to invest in fixed...
90.2K
Verified Solution
Link Copied!
Question
Finance
8. You have just received an inheritance of $20,000. You wish to invest in fixed income securities such as bonds, which you think are less risky than stocks. After some research, you have narrowed down your choices to the following three fixed income securities:
One-year Treasury Bill:
Face value of $1000 Yield to maturity of 1.74%
Coupon Bond A:
Two years to maturity Face value of $1000 Coupon rate of 3%, with semi-annual coupon payments Price multiple of face value = 1.0189
Coupon Bond B:
Five years to maturity Face value of $1000 Coupon rate of 3.5%, with annual coupon payments Yield to maturity of 2.51%
All yields to maturity are compounded semi-annually. (9 marks total)
What is the price of the one-year treasury bill? (2 marks)
What is the yield to maturity on Coupon Bond A? (2 marks)
What is the price of Coupon Bond B? (2 marks)
If the inflation rate is 1.5%, what are the real yields on the one-year treasury bill, Coupon Bond A, and Coupon Bond B? (2 marks)
If your personal real hurdle rate (the minimum rate of return required on investments) is 1%, which of the three fixed income securities would you choose to invest in? (1 mark)
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
