The University of California has two bonds outstanding. Both issues have the same credit rating, a face value of $1,000 and a coupon rate of 6%. Coupons are paid twice a year. Bond A matures in 1 year, while bond B matures in 30 years. The market interest rate for similar bonds is 10%. What is the price of bond A? What is the price of bond B? Now assume that yields increase to 13%. What is the price of bond A? What is the price of bond B now?
The University of California has two bonds outstanding. Both issues have the same credit rating, a face value of $1,000 and a coupon rate of 6%. Coupons are paid twice a year. Bond A matures in 1 year, while bond B matures in 30 years. The market interest rate for similar bonds is 10%. What is the price of bond A? What is the price of bond B? Now assume that yields increase to 13%. What is the price of bond A? What is the price of bond B now?
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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The University of California has two bonds outstanding. Both issues have the same credit rating, a face value of $1,000 and a coupon rate of 6%. Coupons are paid twice a year. Bond A matures in 1 year, while bond B matures in 30 years.
The market interest rate for similar bonds is 10%.
What is the price of bond A?
What is the price of bond B?
Now assume that yields increase to 13%. What is the price of bond A?
What is the price of bond B now?
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