Solution-Contrast a 10-year aaa corporate bond

Contrast a 10-year aaa corporate bond

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Reference no: EM132657517

1) Compare and contrast a 10-year AAA corporate bond with a 10-year Treasury STRIPS. Which would typically offer a higher interest rate? Why? What risk affects both types of bonds? What risk(s) affect only the corporate bond?

2) When we observe interest rates in the financial press, do we see nominal or real rates? Suppose you are 20 years from retirement and are rebalancing the assets in your retirement portfolio. Which rate is more relevant to you? Why?

3) A Treasury STRIPS matures in 10 years and has a yield to maturity of 0.58 percent. If the par value is $100,000, how much would you pay for this STRIPS? What would be the quoted price (e.g., the price reported in the WSJ bond tables)?

4) The current annualized yield on a 2-year STRIPS is 0.13% and the annualized yield on a 3-year STRIPS is 0.15% (WSJ for week ended 7/31/2020). According to the expectations theory of interest rates, what will be the annualized yield on a 1-year STRIPS two years from now? What would you expect to pay for this STRIPS with a $1,000 face value two year from now?

Reference no: EM132657517

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Contrast a 10-year aaa corporate bond

Reference no: EM132657517

Reference no: EM132657517

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