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Consider a 6% coupon, 20-year option-free bond selling at 89.32. If the yield is decreased by 20 basis points from 7.0% to 6.8%, the price would increase to 91.32. If the yield increases by 20 basis points, the price would decrease to 87.38. Given this information, answer the following questions.
a. Using the formula for duration in the chapter, calculate the duration for this bond.
b. What is the approximate percentage price change if interest rates increase by 300 basis points?
c. Using the formula for convexity in the chapter, calculate the convexity for this bond.
Would you recommend borrowing from a bank at an 18 percent annual interest rate to take advantage of the cash discount offer? Explain your answer.
Savings by _______ in small dollar amounts is the origin of much of the money that funds business loans in an economy
what is the cash price of the bonds to the nearest dollar?
What is the future worth (in Year 10) of $23,000 deposited at the end of Year 3 plus $28,000 deposited at the end of Year 5, and $20,000 deposited at the end of Year 8 at an interest rate of 10% per year?
You want to purchase a business with the following cash flows. How much would you pay for this business today assuming you need a 14% return to make this deal? a. First year $150,000 b. Second year $175,000 c. Third year $225,000 d. Forth year $275,0..
What is the price (expressed as a percentage of the face value) of the treasury bond?
Calculate the price of a European put option with a six-month expiration and a strike price of $30.
The current price of a stock is $94, and three-month European call options with a strike price of $95 currently sell for $4.70. An investor who feels that the price of the stock will increase is trying to decide between buying 100 shares and buying 2..
In each of the following independent cases in which the partnership owns no hot assets, indicate the following. All of the partners received proportionate distributions. Kim receives $20,000 of cash in partial liquidation of her interest in the partn..
A firm's overall cost of capital: a. is another term for the firm s internal rate of return. b. is the required return on the total assets of a firm. c. is unaffected by changes in the tax rate. d. is the same as the firm s return on equity. e. varie..
Shapland Inc. has fixed operating costs of $550,000 and variable costs of $35 per unit. If it sells the product for $75 per unit, what is the break-even quantity?
Your brokerage account is not approved for option trading. What is your best strategy for purchasing 1000 shares?
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