Interest rate risk and bond pricing

Assignment Help Finance Basics

Reference no: EM1334079

Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000. The coupon rate on this security is 8 percent. Interest payments are made to bondholders once a year. Currently, bonds of this particular risk class are yielding investors 9 percent. A cash shortage has forced you to instruct your treasurer to liquidate the bond.

a. At what price will your bond be sold? Assume annual compounding.

b. What will be the amount of your gain or loss over the original purchase price?

c. What would be the amount of your gain or loss had the treasurer originally purchased a bond with a 4-year rather than a 20-year maturity? (Assume all characteristics of the bonds are identical except their maturity periods.)

d. What do we call this type of risk assumed by your corporate treasurer?

Reference no: EM1334079

Questions Cloud

Food law and regulation : The Fruit Pit Co. sells apricot pits packaged as a conventional food. Apricot pits contain amygdalin, which may have toxic effects similar to cyanide.

Effective traits of an hr professional : Explain What kind of character traits do HR professionals need to be effective in their positions and What valid, reliable selection methods would help to identify these traits in prospective HR professionals?

Express why this algorithm favors i/o bound programs : express why this algorithm favors I/O bound programs and yet does not permanently deny processor time to processor bound programs.

Three primary causes of voluntary turnover : For the three primary causes of voluntary turnover (desirability of leaving, ease of leaving, alternatives), might their relative importance depend on the type of employee or type of job? Explain.

Interest rate risk and bond pricing : Two years ago your corporate treasurer purchased for the firm a 20-year bond at its par value of $1,000. The coupon rate on this security is 8 percent. What will be the amount of your gain or loss over the original purchase price? What do we call t..

Simple interest and compound interest : Illustrate out the difference between simple interest and compound interest? What are some examples of where might each be employed?

Leadership skills : Should organizations seek leaders that fit an existing strategy and structure?

What is the role of ram : What is the role of: RAM, clock speed, data on hard disk, data on CD ROM, and data on floppy disk.

Identifying decision made by best buy or in near future : Identify a decision/plan that has recently been made by Best Buy or will be made in the near future. Identify two relevant and two non-relevant costs in this decision.

User Account

All Pages