Here are data on $1,000 par value bonds issued by Caterpillar and Intel. Assume you are thinking about buying these bonds. CaterpillarIntelCoupon5%4%Years to Maturity810Required Return4%5% Answer the following questions: a) Assuming interest is paid annually, calculate the values of each of the bonds b) How would these values change if the coupon was paid semiannually ( c) Assume that the bonds with the coupon that is paid annually (point a) are selling for the following amounts: · Caterpillar $1,050 · Intel $980 What are the expected rates of return (YTM) for each bond? d) How would change the price of each bond if the required rate of return (current 4% for Caterpillar and 5% for the Intel and with annual coupon) increased by 2% What will you deduce about the relationship between market interest rate and bond prices? .
Y8
Here are data on $1,000 par value bonds issued by Caterpillar and Intel. Assume you are thinking about buying these bonds.
CaterpillarIntelCoupon5%4%Years to Maturity810Required Return4%5%Answer the following questions:
a) Assuming interest is paid annually, calculate the values of each of the bonds
b) How would these values change if the coupon was paid semiannually (
c) Assume that the bonds with the coupon that is paid annually (point a) are selling for the following amounts:
· Caterpillar $1,050
· Intel $980
What are the expected
d) How would change the price of each bond if the required rate of return (current 4% for Caterpillar and 5% for the Intel and with annual coupon) increased by 2%
What will you deduce about the relationship between market interest rate and
Step by step
Solved in 3 steps with 2 images
