Measures bond sensitivity to interest rate changes

Assignment Help Financial Management

Reference no: EM131942984

Your Uncle Jamie wishes to invest some money in either Bond A or Bond B. Bond A has a face value of $1,000, a coupon rate of 6%, a date to maturity of 3 years, and a current price of $1,000. Bond B has a face value of $1,000, a coupon rate of 8%, and a date to maturity of 3 years. Coupons are paid semi-annually.

a. Which bond has a higher duration?

b. Bond duration measures a bond’s sensitivity to interest rate changes: the higher the duration, the more sensitive a bond is to interest rate changes. If Uncle Jamie is risk averse, which bond should he choose?

Reference no: EM131942984

Questions Cloud

Accounting department initial cost and salvage projections : Suppose you believe that the accounting department’s initial cost and salvage projections are accurate only to within ±15%;

What are npvs in the best-case and worst-case scenarios : What are the NPVs in the best-case and worst-case scenarios? Evaluate the sensitivity of your base-case NPV to changes in fixed costs.

Decide not to participate in the rights offering : If you currently own 6,000 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your right

Company should erect its own towers or lease them out : Determine whether the company should erect its own towers or lease them out.

Measures bond sensitivity to interest rate changes : Bond duration measures a bond’s sensitivity to interest rate changes: the higher the duration, the more sensitive a bond is to interest rate changes.

What is case when a positive schedule variance : What is a case when a positive Schedule Variance(SV) might not be a good thing?

Indifferent between receiving the money now and receiving : How far into the future can the $6 million be deferred before we become indifferent between receiving the money now and receiving it

What is average tax rate for firm with taxable income : What is the average tax rate for a firm with taxable income of $121,513?

Significant cost to bankruptcy since the stock price : There is a significant cost to bankruptcy since the stock price essentially goes to zero. Comment. in corporate finance.

User Account

All Pages