Determine what is the fair price of each bond now

Assignment Help Financial Econometrics

Reference no: EM13333543

ABC is also interested in buying some corporate bonds for its investment account. Suppose these bonds have identical coupon rates of 7.75% but one issue matures in 3 years, one in 8 years, and the third in 13 years. Assume that a coupon payment was made yesterday and they are all issued by the same company.

a) The yield to maturity for all three is 6.55%, what is the fair price of each bond?

b) Suppose that the yield to maturity for all of these bonds changed instantaneously to 5%. What is the fair price of each bond now?

c) Suppose that the yield to maturity for all of these bonds changed instantaneously again, this time to 9%. Now what is the fair price of each bond?

d) Based on the fair prices at the various yields to maturity is interest-rate risk the same, higher, or lower for longer- versus shorter-maturity bonds.

Reference no: EM13333543

Questions Cloud

What is the realized return on abcs investment : ABC buys a very risky corporate bond with a par value of $1000. It has a 16.0% coupon and matures in 8 years. They pay only $600 for the bond.

Determine the angular acceleration of the ferris wheel : A Ferris wheel is moving at an initial angular velocity of 1.0 rev/53 s. If the operator then brings it to a stop in 2.8 min, what is the angular acceleration of the Ferris wheel

Prepare a pro forma operating statement : Management Control is the process by which managers influence other members of the organization to implement the organization's strategies and strategy Formulation is the process of deciding on the goals of the organization and the strategies for a..

Determine what is the fair price of each bond now : ABC is also interested in buying some corporate bonds for its investment account. Suppose these bonds have identical coupon rates of 7.75% but one issue matures in 3 years, one in 8 years, and the third in 13 years.

Find the amount to which 500 will grow in 5 years : find the amount to which 500 will grow in 5 years if the investment earns 12 percent compounded a) annually b) semiannually c) monthly.

Determine how much money will invest in stock y : If Stock X has an expected return of 15.35 percent and a beta of 1.55, and Stock Y has an expected return of 9.4 percent and a beta of 0.7, how much money will you invest in Stock Y

Determine what is beta of the portfolio in stocks : You have invested $5,500, $5,500, and $6,600 in stocks A, B, and C. The betas for these stocks are ( 1.35, 1.40, and 1.40 ). What is beta of your portfolio

User Account

All Pages