What is walter annualized holding period return

Assignment Help Financial Management

Reference no: EM131591807

Vice Corp. issued 12-year coupon bonds 2 years ago at a coupon rate of 8%. The bond was issued at par and pays semiannual coupon payments. Hardy Corp. has 8% coupon bond outstanding, with semiannual coupon payments. The Hardy Corp. bonds currently have 3 years to mature. The interest rate has been unchanged, and both bonds have been priced at par value until just now, when the Fed announced to cut the annual interest rate by 1 percent. (a) Walter bought one Vice Corp. bond at the time of issuing 2 years ago. He has already received four semiannual coupon payments. And he decides to sell the bond after the Fed’s announcement. Assume that bond prices change instantaneously to reflect the new interest rate. What is Walter’s annualized holding period return? Why is it higher or lower than 8%? (b) What is the percentage change in the price of these bonds? (c) Suppose instead the Fed announced to raise the interest rate by 1 percent. What is the percentage change in the price of these bonds? Illustrate your answers in (b) and (c) by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of longer-term bonds?

Reference no: EM131591807

Questions Cloud

What are cannons theories on homeostasis : What are Cannon's (1932) theories on homeostasis? What is the World Health Organization's definition of engineering methods, also known as engineering controls?

Discuss the statistics on workplace violence : Discuss the statistics on workplace violence. Describe environmental designs that can reduce workplace violence.

What advantages or disadvantages of methods in nursing study : What advantages or disadvantages do you see in using both types of methods in a nursing study

Describe the challenges of succession planning : Describe the challenges of succession planning. Discuss the statistics on succession planning.

What is walter annualized holding period return : Assume that bond prices change instantaneously to reflect the new interest rate. What is Walter’s annualized holding period return?

Generate a random 5 digit number as a string : Generate a random, 5 digit number as a string - Repeat step 2 and 3 until the player guesses the whole 5 digit number correctly

Prepare income statement in the contribution margin format : Case Hardware sells tiling grout among other products. Using the given information, prepare an Income Statement in the Contribution Margin format

What the difference between positions and interests : What the difference between positions and interests? If in a recruitment negotiation, where a candidate is being offered a job and is negotiating employment.

Develop a listing of new hiv-aids educational strategies : Develop a listing of new HIV/AIDS educational strategies an agency can use in a general community. Be creative and come up with innovative ideas.

User Account

All Pages