At what price will your bond be sold

Reference no: EM131488950

Question: (Interest rate risk) Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000. The coupon rate on this security is 8 percent. Interest payments are made to bondholders once a year. Currently, bonds of this particular risk class are yielding investors 9 percent. A cash shortage has forced you to instruct your treasurer to liquidate the bond.

a. At what price will your bond be sold? Assume annual compounding.

b. What will be the amount of your gain or loss over the original purchase price?

c. What would be the amount of your gain or loss had the treasurer originally purchased a bond with a 4-year rather than a 20-year maturity? (Assume all characteristics of the bonds are identical except their maturity periods.)

d. What do we call this type of risk assumed by your corporate treasurer?

Reference no: EM131488950

Questions Cloud

Which one of two securities do you recommend firm purchase : (Comparison of after-tax yields) The corporate treasurer of Aggieland Fireworks is considering the purchase of a BBB-rated bond that carries a 9 percent.

Solutions available to mitigate impact : Using the material provided in this module and the internet, describe how these emissions are impacting the air we breathe and some of the solutions.

Define free will truth knowledge and opinion : Define free will, truth, knowledge, and opinion. Explain how we use them to form thoughts. What role does each play in critically assessing situations?

Biggest challenges project managers : One of the biggest challenges project managers need to overcome is being able to influence their teams without having direct authority over each individual.

At what price will your bond be sold : (Interest rate risk) Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000. The coupon rate on this security.

Client realize its goals and mission : How will our project help the client realize its goals and mission? Summarize what you envision the benefits of the deliverables

Describe the distribution of power in the united states : Describe the distribution of power in the United States using the three theoretical models of political power. What do the three models have in common?

How the topic of the talk relates to concepts of imagination : Explain how the topic of the talk relates to the concepts of imagination and curiosity.How the talk's content illuminates some of the stages of creativity.

Small business opportunities and rewards : Why start a small business? Most people who desire to be small business owners will immediately respond with, "I want to be my own boss."

User Account

All Pages