Calculate the price of a coupon

Assignment Help Finance Basics
Reference no: EM133112845

Calculate the price of a 5% coupon, $1000 face value 5 year bond that's callable after one year for $1030 if there's an equal chance that interest rates for each of the next five years will be 4%, 5% or 6% (in all cases, rates will be constant for all five years so either 4%, 4%, 4%, 4%, 4% or 5%, 5%, 5%, 5%, 5% or 6%, 6%, 6%, 6%, 6%). Assume the call provision can only be exercised after the first coupon is paid (at the so called coupon anniversary). If the probability that both 4% and 6% falls to 10% (leaving the average rate the same: 5%), the price of this bond will rise. Intuitively, explain why?

Reference no: EM133112845

Questions Cloud

Function of public health at national : Addressing public health issues comes down to identifying issues through assessment of public health, developing policies to improve the issue
Recent bouts of volatility in the euro : An Italian luxury goods maker, with retail outlets in Japan, is concerned with recent bouts of volatility in the Euro/Yen FX rate. The current EURJPY spot rate
Discount rate for developing : Since you should use a discount rate reflective of the investment's risk to discount cash flows, the appropriate discount rate for developing an "A" quality 1 m
Increasing the interest rate to all the bonds : What will be the impact of the central bank increasing the interest rate to all the bonds respectively?
Calculate the price of a coupon : Calculate the price of a 5% coupon, $1000 face value 5 year bond that's callable after one year for $1030 if there's an equal chance that interest rates for eac
Calculate irr : If you Invest $2,000 now, receive 3 yearly payments of $100 each, plus $2,500 in the 3rd year. Calculate IRR.
Health promotion program : Research 1 health promotion program of interest to you, such as a supplemental food distribution program for older adults
Economic exposure to exchange rate fluctuations : ABC Corp. is a U.S.-based MNC that has a large government contract with France. The contract will continue for several years and generate more than half of ABC'
Underlying nature and cause of selected issue or disease : Describe the selected issue or disease. Identify the underlying nature and cause of the selected issue or disease.

Reviews

Write a Review

Finance Basics Questions & Answers

  How much must he save during each of the next 10 years

Assume that your father is now 50 years old, that he plans to retire in 10 years, and that he expect to live for 25 years after he retires- that is, until age 85. He wants his first retirement payment to have the same purchasing power at the time he ..

  How individual investor might get into big financial problem

Can the misuse of options or futures result in just the opposite of risk management -- it can result in great risk to an organization? If not, why not?

  If stock a had a price of 120 at the beginning of the year

if stock a had a price of 120 at the beginning of the year 150 at the end of the year and paid a 6 dividend during the

  How people in midlife or late adulthood can enhance optimal

How people in midlife or late adulthood can enhance optimal aging?

  Raise the funds for the initial? investment

Suppose that to raise the funds for the initial? investment, the project is sold to investors as an? all-equity firm.

  Why common stockholders can demand a higher rate of return

the usual collateral position of Bondholders (Lenders) versus Equity investors, 2) why common stockholders can demand a higher rate of return than lenders, and 3) why you would suggest debt (or equity) financing.

  Correct answer and double click the box

Identify the items from the following list that are likely to serve as source documents. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with t..

  What is a common weakness of jensen''s alpha and the treynor

What is a common weakness of Jensen's alpha and the Treynor ratio?

  Outline the process of bank securitisation

PART A: Banks and other mortgage originators often securitise long-term assets like mortgages, to ensure liquidity. Briefly outline the process of bank securiti

  Coupon rate on bonds-rhiannon corporation

Rhiannon Corporation has bonds on the market with 18.5 years to maturity, a YTM of 6.5 percent, a par value of $1,000, and a current price of $1,048.

  Negotiating salary with your employer

Let's say you are negotiating salary with your employer. According this video who should make the first offer: you or your boss? Why? (the why is the most impor

  Compare and contrast the differing views an investor

Compare and contrast the differing views an investor and management may have on financial statements. How should investors and management view EVA and FCF?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd