How much will the value of each bond change

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Reference no: EM131859690

You are analyzing the following US corporate bonds and both are issued by the same company. (Hint: US corporate bonds pay interest semi-annually)

Bond Price (as % of par) Coupon (%) Maturity (years)

A 100.00 3 20

B 55.13 0 20

a. If interest rates move up by 0.5% (50 basis points), how much will the value of each bond change (in %)?

b. If you expect interest rate to fall over time, which bond would you invest in?

c. You decide to purchase $1,000,000 worth of bond B, if the par value of each bond is $1,000 how many bonds must you buy (ignore any transaction costs)?

d. If you invest in bond B, how much will it be worth 2 years later if the appropriate yield for this bond then is 3.5%?

Reference no: EM131859690

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