User Account

All Pages

How is interest-rate risk a function of a bond maturity

Assignment Help Finance Basics
Reference no: EM13285492

A quick look at bond quotes will tell you that GMAC has many different issues of bonds outstanding. Suppose that four of them have identical coupon rates of 7.25% but mature on four different dates. One matures in 2 years, one in 5 years, one in 10 years, and the last in 20 years. Assume that they all made coupon payments yesterday.

a. If the yield curve were flat and all four bonds had the same yield to maturity of 9%, what would be the fair price of each bond today?

b. Suppose that during the first hour of operation of the capital markets today, the term structure shifts and the yield to maturity of all these bonds changes to 10%. What is the fair price of each bond now.

c. Suppose that in the second hour of trading, the yield to maturity of all these bonds changes once more to 8%. Now what is the fair price of each bond?

d. Based on the price changes in response to the changes in yield to maturity, how is interest-rate risk a function of a bond's maturity? That is, is interest-rate risk the same for all four bonds, or does it depend on the bond's maturity?

 

Reference no: EM13285492

Questions Cloud

Midi-chlorian biology from this observation : Mid-chlorians have double-stranded DNA as their genetic material. DNA replication in these organisms is semi-conservative but differs from the process in terrestrial organisms in that there are no Okazaki fragments: synthesis is continuous on both th..
Explain what is the activation energy for this reaction : A first-order reaction has a half-life of 55.0 min at 25 ºC and 6.8 min at 100 ºC. What is the activation energy for this reaction
What is the speed of the ball in orbit : You have a ball on a wire that is twirled in a circular orbit with a radius of 3.8 m, and the centripetal force acting on the ball, What is the speed of the ball in orbit
Explain the total pressure of a mixture of n2o4 and no2 : The total pressure of a mixture of N2O4 and NO2 is 1.5 atm. If Kp=7.1 (at 25 degrees C) calculate the partial pressure of each gas in the mixture.
How is interest-rate risk a function of a bond maturity : Based on the price changes in response to the changes in yield to maturity, how is interest-rate risk a function of a bond's maturity? That is, is interest-rate risk the same for all four bonds, or does it depend on the bond's maturity?
How to plot the velocity and acceleration of the aircraft : Write a MATLAB program that asks the user to enter a beginning time and an ending time (both in seconds) that define an interval of time over which we want to plot the velocity and acceleration of the aircraft.
Compute carbon dioxide has a solubility : At 25 °C and 775 Torr, carbon dioxide has a solubility of 0.0347 M in water. What is its solubility at 25 °C and 1370 Torr
What is the wacc prior to the expansion : What is the WACC prior to the expansion? After the expansion? Why would leverage cause the increase in the cost of debt.
What is the weight of the landing craft : Imagine a landing craft approaching the surface of Callisto, one of Jupiter's moons. What is the weight of the landing craft in the vicinity of Callisto's surface

Reviews

Write a Review

Finance Basics Questions & Answers

  The frn has quarterly coupons equal to three-month

Takeda Development Corporation has issued a $100 million floating rate note (FRN) that will mature in three years. The FRN has quarterly coupons equal to three-month LIBOR,

  What is the average accounting rate of return

This equipment will be depreciated on a straight-line basis to a zero book value its eight-year life. The equipment is expected to generate net income of $36,000 a year for the first four years and $22,000 a year for the last four years. What is t..

  Sources of short-term-medium-term and long-term

What are some sources of short-term, medium-term, and long-term international financing? What are the costs associated with each of these sources?

  What amount would be recorded in the paid-in capital account

If a firm issues 10,000 shares of common stock with a par value of $5 and for a sales price of $15, what amount would be recorded in the paid-in capital account?

  How marginal cost pricing is used by price setters in health

Suppose a hospital was offered a capitation rate for a covered population of $40 per member per month (PMPM). Briefly explain how targeting costing would be applied to this situation.

  Determine the financial ratios from the annual report

Follies Bookstore, the only bookstore close to campus, had a net income of $90,000 in 2009. Here are some of the financial ratios from the annual report

  What amount of the payroll department costs

What amount of the payroll department costs will be allocated to the molding department?

  What fraction of the payment made at the end

Your company is planning to borrow $1,750,000 on a 3-year, 16%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal? Round your answer to two decimal plac..

  What is the amount of the lump sum

What is the amount of the lump sum that would be exactly equal to the present value of the annual installments? Round off to the nearest $1.

  How much should you be willing to pay for this stock

If you require a 14 percent rate of return, how much should you be willing to pay for this stock? A. $56.46 B. $83.65 C. $89.75 D. $62.57

  What is the value of a share of preferred stock

What is the value of a share of preferred stock that pays a $4.50 dividend, assume k is 10%.

  What is your portfolio return

If you have a portfolio made up of 30 percent Company O, 40 percent Company V, and 30 percent Company M, what is your portfolio return?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd