A Multi-national Corporation sold an issue of bonds in the Pakistani bondsmarket. The main features of these bonds were as follow:a) Maturity period = 10 Yearsb) Face value = Rs.1,000c) Coupon rate = 10% per annumd) Interest is paid semi-annuallyRequired:1) Two years after the bonds were issued, thegoing rate of interest on bondssuch as these fell to6% per annum. At what price would the bonds sell inthe market? 2) Suppose that, two yearsafter the initial offering, the going interest ratehad risen to 12%. At what price would the bonds sell?3) Comment on your resultsNote: In both cases you need to calculate market price/bond.
A Multi-national Corporation sold an issue of bonds in the Pakistani bondsmarket. The main features of these bonds were as follow:a) Maturity period = 10 Yearsb) Face value = Rs.1,000c) Coupon rate = 10% per annumd) Interest is paid semi-annuallyRequired:1) Two years after the bonds were issued, thegoing rate of interest on bondssuch as these fell to6% per annum. At what price would the bonds sell inthe market? 2) Suppose that, two yearsafter the initial offering, the going interest ratehad risen to 12%. At what price would the bonds sell?3) Comment on your resultsNote: In both cases you need to calculate market price/bond.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
A Multi-national Corporation sold an issue of bonds in the Pakistani bonds
market. The main features of these bonds were as follow:
a) Maturity period = 10 Years
b) Face value = Rs.1,000
c) Coupon rate = 10% per annum
d) Interest is paid semi-annually
Required:
1) Two years after the bonds were issued, the
going rate of interest on bonds
such as these fell to
6% per annum. At what price would the bonds sell in
the market?
2) Suppose that, two years
after the initial offering, the going interest rate
had risen to 12%. At what price would the bonds sell?
3) Comment on your results
Note: In both cases you need to calculate market price/bond.
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