Assuming that the bond with the coupon you computed in b.4 were issued today, show to what the market price of that bond in b.4 would change if the bond yield to maturity fell by 2% shortly after it was issued at par value (with the change in the yield to maturity after issue occurring due to a decline in yields on 30-year T-bonds and/or a reduction in the company’s default risk) semi-annual payments and sells for its par value/principal amount of $1000 per bond? Market Rate = 4.97%-2%
Assuming that the bond with the coupon you computed in b.4 were issued today, show to what the market price of that bond in b.4 would change if the bond yield to maturity fell by 2% shortly after it was issued at par value (with the change in the yield to maturity after issue occurring due to a decline in yields on 30-year T-bonds and/or a reduction in the company’s default risk) semi-annual payments and sells for its par value/principal amount of $1000 per bond? Market Rate = 4.97%-2%
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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- Assuming that the bond with the coupon you computed in b.4 were issued today, show to what the market price of that bond in b.4 would change if the bond yield to maturity fell by 2% shortly after it was issued at par value (with the change in the yield to maturity after issue occurring due to a decline in yields on 30-year T-bonds and/or a reduction in the company’s default risk)
semi-annual payments and sells for its par value/principal amount of $1000 per bond?
Market Rate = 4.97%-2%
Expert Solution
Step 1
The bond price is inversely proportional to the market rate. It means if market rate reduces, the bond price increases and if market rate increases, the bond price decreases.
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