Jonathan, an analyst, has to find the value of an illiquid bond with tenor 3 years and an annual coupon rate of3%. The following two bonds with similar credit quality have been identified.Bond TenorAnnual coupon ratePrice|$106.25| $104.50A|2 years 3.5%| 4 years 3.0%Assuming matrix pricing was used for valuation, the estimated price of the illiquid bond is most likely to beclosest to:A. $104.8.B. $105.4.C. $105.6.

This question is based on more on common sense than the formulae for calculation of bond prices.

Answered: Assuming matrix pricing was used for…

Assuming matrix pricing was used for valuation, the estimated price of the illiquid bond is most likely to be closest to:

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

Jonathan, an analyst, has to find the value of an illiquid bond with tenor 3 years and an annual coupon rate of
3%. The following two bonds with similar credit quality have been identified.
Bond Tenor
Annual coupon rate
Price
|$106.25
| $104.50
A
|2 years 3.5%
| 4 years 3.0%
Assuming matrix pricing was used for valuation, the estimated price of the illiquid bond is most likely to be
closest to:
A. $104.8.
B. $105.4.
C. $105.6.

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