Bonds duration measure under these two situations

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Reference no: EM131886169

You are a financial advisor to Mr. Spielberg who as we know will invest only in bonds. You have on offer to him a $1000 bond (par) good for 25 years with a 9% coupon rate. This looks good so far but if he requires a YTM of 7.6% how much is the bond worth to him? Would you recommend he purchase it?

The conversation with Mr. Spielberg regarding the bond in question 7 did not go well and you offer now ask that he consider the following: He can claim residence in a state with a 3% income tax rate, and his Federal bracket is 35%. You have two bonds to offer him: a) a $1000 par bond that is fully taxable and pay 10% and b) a $1000 par bond that pays 7% but is exempt for state and Federal taxes. Which one should he purchase?

Mr. Spielberg now asks you what will happen to his bonds duration measure under these two situations: a) the YTM falls from 8.5 % to 8.0% and b) market rates were to increase from 8% to 9%?

Reference no: EM131886169

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