Show your work (use of formula, etc.) in solving the problem: Susan bought a 18-year bond when it was issued by Octodan Corporation 2 years ago (NOTE: the bond was issued 2 years ago. In calculating price today, remember it has only 16 years remaining to maturity). The bond has a $1,000 face value, an annual coupon rate equal to 8 percent and the coupons are paid every six months. If the yield on similar-risk investments is 10 percent, What is the current market value (price) of the bond? Suppose interest rate levels rise to the point where such bonds now yield 12 percent. What would be the price of Octodan bond? At what price would Octodan bonds sell if the yield on them was 7 percent?
Show your work (use of formula, etc.) in solving the problem: Susan bought a 18-year bond when it was issued by Octodan Corporation 2 years ago (NOTE: the bond was issued 2 years ago. In calculating price today, remember it has only 16 years remaining to maturity). The bond has a $1,000 face value, an annual coupon rate equal to 8 percent and the coupons are paid every six months. If the yield on similar-risk investments is 10 percent, What is the current market value (price) of the bond? Suppose interest rate levels rise to the point where such bonds now yield 12 percent. What would be the price of Octodan bond? At what price would Octodan bonds sell if the yield on them was 7 percent?
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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Show your work (use of formula, etc.) in solving the problem:
- Susan bought a 18-year bond when it was issued by Octodan Corporation 2 years ago (NOTE: the bond was issued 2 years ago. In calculating price today, remember it has only 16 years remaining to maturity). The bond has a $1,000 face value, an annual coupon rate equal to 8 percent and the coupons are paid every six months. If the yield on similar-risk investments is 10 percent,
- What is the current market value (price) of the bond?
- Suppose interest rate levels rise to the point where such bonds now yield 12 percent. What would be the price of Octodan bond?
- At what price would Octodan bonds sell if the yield on them was 7 percent?
- What do you observe regarding the relationship between interest rate (YTM)
bond’s price ? - What do you observe regarding the relationship between coupon, YTM and the bond’s price?
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