A. Consider the following bond: $1000 face value, coupon rate of 7.5%, paid semi- annually and remaining maturity of 10 years. With a starting YTM of 7.5% it's interest rate risk is 7.015%. The interest rate risk with a starting YTM of 14% is B. Bond Hi-Coupon: Face value $1000, maturity 10 years, coupon rate 15% paid annually. It is currently traded at a YTM of 10%. You calculate the interest rate risk of the bond and find it to be 5.782% (check this!). Bond Zero-coupon: Face value $1000, maturity 10 years. This bond is also currently traded at a ÝTM of 10%. What is the interest rate risk of this bond?
A. Consider the following bond: $1000 face value, coupon rate of 7.5%, paid semi- annually and remaining maturity of 10 years. With a starting YTM of 7.5% it's interest rate risk is 7.015%. The interest rate risk with a starting YTM of 14% is B. Bond Hi-Coupon: Face value $1000, maturity 10 years, coupon rate 15% paid annually. It is currently traded at a YTM of 10%. You calculate the interest rate risk of the bond and find it to be 5.782% (check this!). Bond Zero-coupon: Face value $1000, maturity 10 years. This bond is also currently traded at a ÝTM of 10%. What is the interest rate risk of this 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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Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Question
Transcribed Image Text:A. Consider the following bond: $1000 face
value, coupon rate of 7.5%, paid semi-
annually and remaining maturity of 10 years.
With a starting YTM of 7.5% it's interest rate
risk is 7.015%. The interest rate risk with a
starting YTM of 14% is
B. Bond Hi-Coupon: Face value $1000,
maturity 10 years, coupon rate 15% paid
annually. It is currently traded at a YTM of
10%. You calculate the interest rate risk of the
bond and find it to be 5.782% (check this!).
Bond Zero-coupon: Face value $1000,
maturity 10 years. This bond is also currently
traded at a YTM of 10%. What is the interest
rate risk of this bond?
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