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Coupon payments occur once per year

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The YTM (Yield to maturity) on a 18 year bond is 6.7%. The bond has a face value of $1,000.00 and a coupon rate of 3.3%. Interest rates are constant. Assume that coupon payments occur once per year.

1. The price of the bond P0, at t= is equal to:

2. The price of the bond P1, at t=1 is equal to:

3. Expressed as a decimal, the bond return at t=1 (Ret1) is equal to:

4. Suppose today investors suddenly perceive that the chance that the bond may default at some time in the future has increased. (The bond has become riskier.) After the bond has adjusted, how will the bond's new YTM compare to the old YTM? Will it be lower, the same, or higher?

Reference no: EM131760040

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