Calculate the price of each bond if the yield to maturity

Assignment Help Financial Management

Reference no: EM132033821

Two bonds make semiannual interest payments of $50. Bond A matures in 2 years and Bond B matures in 12 years. Both bonds currently sell at par ($1,000).

a) Calculate the price of each bond if the yield to maturity increases to 12 percent. What is the percentage change in price for each bond?

b) Calculate the price of each bond if the yield to maturity decreases to 8 percent. What is the percentage change in price for each bond versus the base case?

c) What do you conclude about the relationship between time to maturity and the sensitivity of bond prices to interest rates?

Reference no: EM132033821

Questions Cloud

Calculate the payback period for this purchase : It will also reduce the cost of your consumables by $2250 per month. The robotic welding system has no salvage value.

Find the ant average velocity during this time interval : Then it is seen staggering back and forth along the trail, eventually stopping for a nap at position xf = 8.05 m exactly 82.3 s later

What is the squirrels final position xf : It then undergoes a displacement of ?x = -6.83 m. What is the squirrel's final position xf?

Calculate the cost of issuing new common stock : If the flotation cost per share of new common stock is $4, calculate the cost of issuing new common stock.

Calculate the price of each bond if the yield to maturity : What do you conclude about the relationship between time to maturity and the sensitivity of bond prices to interest rates?

What will be the effective purchasing power : When the firm repays the original $7, 550,000 loan this year, what will be the effective purchasing power of the $7, 550,000?

Show calculation steps leading to this choice : Two alternatives for purchasing a new printing machine (from provider's A and B) are being considered for a production upgrade of a printing facility.

Compute the total value of the inflows after five years : If the reinvestment assumption of the net present value method is used, what will be the total value of the inflows after five years?

What is the percentage change in the prices : If interest rates increase by 2%, what will be the new price of the two bonds? What is the percentage change in the prices?

User Account

All Pages