Find the fair value of the bond

Reference no: EM13271640

Consider the following bond with a Baa rating that currently trades in the secondary market:
Par value: 1000000
Coupon: 8.5% paid annually
Maturity: 2 years
Yield on other 2 year Baa bonds: 6%
i. Find the fair value of the bond
ii. What would the YTM of this bond be if you purchase at its fair value today?
iii. Find the duration and modified duration of this bond. Examine whether the modified duration is fairly accurate in reflecting the bond's senstivity to a 1% change in interest rate.

Reference no: EM13271640

Questions Cloud

What is the sampling period and the bit time : 2. What is the sampling period 3. What is the bit time 4. What is the bit rate of that system 5. What is the time allotted to each channel

What is its current stock price : The last dividend paid by Marquette Inc. was $1.25. The dividend growth rate is expected to be constant at 15% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (rs) is 11%, what is its ..

Compute the weight and volumes of the two phases : 25 lbs of propane are held in a sealed container at 350 psia. The volume of the container is 3 ft3. Calculate the weight and volumes of the two phases in the container.

Compute the linear density of the string : A steel wire with mass 20.5 g and length 1.29 m is strung on a bass so that the distance from the nut to the bridge is 1.10 m. Compute the linear density of the string

Find the fair value of the bond : Find the duration and modified duration of this bond. Examine whether the modified duration is fairly accurate in reflecting the bond's senstivity to a 1% change in interest rate.

Compute the number of moles using the virial equation : A 10.00L vessel conatining CO2 has an internal pressure 20.0 atm at 273K Calculate the number of Moles Using the virial equation and van der wals equation

How sensitive is the acquisition value to these estimates : A major concern in any DCF valuation is the accuracy of both the terminal (long-term) growth rate and discount rate estimates. How sensitive is the acquisition value to these estimates?

Determine the maximum speed of the object : A 0.36-kg object connected to a light spring with a force constant of 24.4 N/m oscillates on a frictionless horizontal surface. Determine the maximum speed of the object

Which of these motives are financially justifiable : Several factors have been proposed as providing motives for mergers, including (1) synergy, (2) availability of excess cash, (3) ability to purchase assets at less than replacement cost, (4) diversification, and (5) managers' personal incentives.

User Account

All Pages