A bond has a face value of $2000, a coupon rate of 6% and matures in 10 years’ time. If its current yield to maturity is 8% what is the current price of the bond? If the yield falls to 4% determine the bond price. What do these results indicate about the relationship between the price of a bond and its yield to maturity? B. You are asked to put a value on a bond which promises eight annual coupon payments of £70 and will repay its face value of £1000 at the end of eight years. You observe that other similar bonds have yields to maturity of 9 per cent. How much is this bond worth? You are offered the bond for a price of £1030.44. What yield to maturity does this represent? C. Explain in detail the trade-off model of capital structure. In light of the current global financial challenge, discuss which elements of the model are expected to become most prevalent?
Question 2
A. A bond has a face value of $2000, a coupon rate of 6% and matures in 10
years’ time. If its current yield to maturity is 8% what is the current price of
the bond? If the yield falls to 4% determine the
results indicate about the relationship between the price of a bond and its
yield to maturity?
B. You are asked to put a value on a bond which promises eight annual coupon
payments of £70 and will repay its face value of £1000 at the end of eight
years. You observe that other similar bonds have yields to maturity of 9 per
cent. How much is this bond worth? You are offered the bond for a price
of £1030.44. What yield to maturity does this represent?
C. Explain in detail the trade-off model of capital structure. In light of the current
global financial challenge, discuss which elements of the model are
expected to become most prevalent?
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