On February 9, 2015, Hunter-Gratzner, Inc. issued a 10 year bond (with a typical $1000 face value) that had an annual coupon value of $42. We will assume that the 2022 coupon has just been redeemed. Initially (in 2015), the bond was sold at the premium price of $1,037. On February 9, 2022, this bond was selling for $972. The market rate of interest for a riskless corporate bond, of this maturity (i.e., a U.S. Treasury security), was 1.75% on February 9, 2015, which reflected market expectations about future rates of inflation. The market rate of interest for a riskless corporate bond, of this maturity (i.e., a U.S. Treasury security), was 2.05% on February 9, 2022, which reflects market expectations about future rates of inflation. Question: It is now February 9, 2022, and suddenly the Federal Reserve announces a massive program to buy more bonds. Instantly, the market rate of interest for a riskless corporate bond that would apply to this bond rises from 2.05% to 2.3%. If there is no change in the risk premium expected for this Hunter-Gratzner, Inc. bond, what will be this bond’s yield to maturity? [To 2 decimal places.] Following this, what must be the new selling price for this bond?
On February 9, 2015, Hunter-Gratzner, Inc. issued a 10 year bond (with a typical $1000 face value) that had an annual coupon value of $42. We will assume that the 2022 coupon has just been redeemed. Initially (in 2015), the bond was sold at the premium price of $1,037. On February 9, 2022, this bond was selling for $972. The market rate of interest for a riskless corporate bond, of this maturity (i.e., a U.S. Treasury security), was 1.75% on February 9, 2015, which reflected market expectations about future rates of inflation. The market rate of interest for a riskless corporate bond, of this maturity (i.e., a U.S. Treasury security), was 2.05% on February 9, 2022, which reflects market expectations about future rates of inflation. Question: It is now February 9, 2022, and suddenly the Federal Reserve announces a massive program to buy more bonds. Instantly, the market rate of interest for a riskless corporate bond that would apply to this bond rises from 2.05% to 2.3%. If there is no change in the risk premium expected for this Hunter-Gratzner, Inc. bond, what will be this bond’s yield to maturity? [To 2 decimal places.] Following this, what must be the new selling price for this bond?
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 13P
Related questions
Question
On February 9, 2015, Hunter-Gratzner, Inc. issued a 10 year bond (with a typical $1000 face value) that had an annual coupon value of $42. We will assume that the 2022 coupon has just been redeemed.
- Initially (in 2015), the bond was sold at the premium price of $1,037.
- On February 9, 2022, this bond was selling for $972.
- The market rate of interest for a riskless corporate bond, of this maturity (i.e., a U.S. Treasury security), was 1.75% on February 9, 2015, which reflected market expectations about future rates of inflation.
- The market rate of interest for a riskless corporate bond, of this maturity (i.e., a U.S. Treasury security), was 2.05% on February 9, 2022, which reflects market expectations about future rates of inflation.
Question: It is now February 9, 2022, and suddenly the Federal Reserve announces a massive program to buy more bonds. Instantly, the market rate of interest for a riskless corporate bond that would apply to this bond rises from 2.05% to 2.3%. If there is no change in the risk premium expected for this Hunter-Gratzner, Inc. bond, what will be this bond’s yield to maturity? [To 2 decimal places.] Following this, what must be the new selling price for this bond?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College