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The one-year interest rate is 2%. Bond A has two years to maturity, a coupon rate of 5% and is priced at $983.52. Bond B has three years to maturity, a coupon rate of 10% and is priced at $970. Assume all coupons are paid annually and that the prices given are for bonds with face value equal to $1,000.
a. Infer the US spot rate curve from these data.
b. Give an explanation, based on term structure theories that you know of, for the shape taken by the term structure that you have derived.
c. Bond C has a coupon rate of 15%, three years to maturity and also has a face value of $1,000. What is its fair price?
d. Using the example of bond C above, describe how you would estimate its yield to maturity. [Note: you do not need to calculate its yield to maturity]. How would you use and interpret the yield to maturity? Do you believe that the yield is a good measure of the likely return from holding the bond?
Explain how low Australian interest rates can affect the tendency of Australia-based MNCs to invest abroad and In general terms, what is the attraction
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During the summer and fall of 2008, the U.S. financial system and financial systems around the world appeared to be on the verge of collailpse.
Suppose a worker needs to process 100 items. The time to process each item is exponentially distributedwith a mean of 1 minute, and the processing times are independent. Approximately, what is the probability that the worker finishes in less than ..
The machine falls into the MACRS 3-year class. Artistic's marginal tax rate is 34 percent, and its required rate of return is 15 percent. Should Artistic purchase the machine?
Gul Corp. considers the following capital structure optimal: 40% debt; 50% equity; and 10% preferred stock. Gul's bond currently sells in the market for $1150.
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