What will be the price of each bond if their yields increase

Assignment Help Financial Management

Reference no: EM13976220

Interest Rate Risk. Consider three bond with 8% coupon rates, all making annual coupon payments and all selling at face value. The short-term bond has a maturity of 4 years, the intermediate-term bond has maturity 8 years, and the long-term bond has maturity 30 years.

a. What will be the price of each bond if their yields increase to 9%?

b. What will be the price of each bond if their yields decrease to 7%?

c. Are long-term bonds more or less affected than short-term bonds by a rise in interest rates?

d. Would you expect long-term bonds to be more or less affected by a "fall" in interest rates?

Reference no: EM13976220

Questions Cloud

What is this projects equivalent annual cost or EAC : A five-year project has an initial fixed asset investment of $290,000, an initial NWC investment of $26,000, and an annual OCF of −$25,000. The fixed asset is fully depreciated over the life of the project and has no salvage value. If the required re..

Reporting under international financial reporting standards : From the e-Activity, contrast the impairment of goodwill on the financial statements of the entity reporting under international financial reporting standards (IFRS) that you researched with the impairment of goodwill on the financial statements of t..

Bound returns : Bound Returns. You buy an 8% coupon, 20-year maturity bond when its yield to maturity is 9%. (Assume semiannual coupon payments.) Six months later, the yield to maturity is 10%. What is your return over the 6 months?

The fixed asset will be depreciated straight-line to zero : Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.82 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. What is the projec..

What will be the price of each bond if their yields increase : Interest Rate Risk. Consider three bond with 8% coupon rates, all making annual coupon payments and all selling at face value. The short-term bond has a maturity of 4 years, the intermediate-term bond has maturity 8 years, and the long-term bond has ..

Compute incremental cash flows of investment for each year : The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 31 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are ..

How much money is currently in the account : Your department at work places $10,000 every year-end into an account earning 5%. The money is used when the corporate office fails to fully finance your profitable projects. The money has not been touched since a deposit was made exactly five years ..

Another utilization of cash flow analysis : Another utilization of cash flow analysis is setting the bid price on a project. To calculate the bid price, we set the project NPV equal to zero and find the required price. Thus the bid price represents a financial break-even level for the project...

Identify recent bond issue that has a call provision fund : What are the advantages and disadvantages of a call provision from the viewpoints of both a firm and its bondholders? If you were the CEO of a firm, would you recommend a call provision for a new bond issue? Why or why not? Can you identify a recent ..

User Account

All Pages