The yield of the 10-year US Treasury bond is 1.20%. It is the risk-free rate. You work for investment manager and your boss asks you to calculate the price of a 10-year corporate bond that yields 3.00% more than its risk-free rate and has a face value of $1,000. The fixed coupon of this corporate bond is 5.00%. Both bonds pay coupons annually. ● ● What is the current price of the corporate bond? Calculate the price of the bond if its yield increased by 1.00%. Calculate the price of the bond if its yield decreased by 1.00%. Please discuss the risk associated with this change in interest rates?

The yield of the 10-year US Treasury bond is 1.20%. It is the risk-free rate. You work for investment manager and your boss asks you to calculate the price of a 10-year corporate bond that yields 3.00% more than its risk-free rate and has a face value of $1,000. The fixed coupon of this corporate bond is 5.00%. Both bonds pay coupons annually. ● ● What is the current price of the corporate bond? Calculate the price of the bond if its yield increased by 1.00%. Calculate the price of the bond if its yield decreased by 1.00%. Please discuss the risk associated with this change in interest rates?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

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The yield of the 10-year US Treasury bond is 1.20%. It is the risk-free rate. You workfor investment manager and your boss asks you to calculate the price of a 10-yearcorporate bond that yields 3.00% more than its risk-free rate and has a face value of$1,000. The fixed coupon of this corporate bond is 5.00%. Both bonds pay couponsannually.• What is the current price of the corporate bond?• Calculate the price of the bond if its yield increased by 1.00%.• Calculate the price of the bond if its yield decreased by 1.00%.• Please discuss the risk associated with this change in interest rates?
The yield of the 10-year US Treasury bond is 1.20%. It is the risk-free rate. You work for investment manager and your boss asks you to calculate the price of a 10-year corporate bond that yields 3.00% more than its risk-free rate and has a face value of$1,000. The fixed coupon of this corporate bond is 5.00%. Both bonds pay coupons annually. • What is the current price of the corporate bond? • Calculate the price of the bond if its yield increased by 1.00%.• Calculate the price of the bond if its yield decreased by 1.00%. Please explain the process and show the calculations/formulas.
The yield of the 10-year US Treasury bond is 1.20%. It is the risk-free rate. You work for investment manager and your boss asks you to calculate the price of a 10-year corporate bond that yields 3.00% more than its risk-free rate and has a face value of $1,000. The fixed coupon of this corporate bond is 5.00%. Both bonds pay coupons annually.• What is the current price of the corporate bond?• Calculate the price of the bond if its yield increased by 1.00%.• Calculate the price of the bond if its yield decreased by 1.00%.• Please discuss the risk associated with this change in interest rates
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K← Consider the case of a two-year discount bond-that is, a bond that pays no coupon and pays its face value after two years rather than one year. Suppose the face value of the bond is $1,000, and the price is $850. What is the bond's yield to maturity? The bond's yield to maturity is%. (Round your response to two decimal places.)
a. Consider a hypothetical scenario where you have a default-free floating rate bond and a corporate floating rate bond with maturities of 5 years. The current default- free floating rate is 4% and the corporate floating rate is 6%. While the rates are quoted annually, both bonds pay coupons semi-annually. The face value of both bonds is $100. Describe step-by-step how you would set up the positions (long and short) to mimic the cash flows of a credit default swap. What would be the CDS rate? b. Assume the "loss given default” is $40 in the problem above. Suppose the loss given default changes and becomes $60. How would the CDS rate change given the increase in "loss given default." c. Suppose the probability of default before 5 years is 2% in the above problem. Now imagine that the probability of default falls to 1%. How would the CDS rate change?
Consider two bonds: Bond M and Bond L. Bond M pays a 6% coupon, while Bond L pays a 10% coupon. Interest rates are currently 8%. Suppose you have a friend who tells you that if rates rise to 12%, that the price of Bond M will rise and the price of Bond L will fall. Is your friend correct?
Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 5 Price $983.78 865.89 797.92 732.00 660.24 Required: a. Calculate the forward rate of interest for each year. b. How could you construct a 1-year forward loan beginning in year 3? c. How could you construct a 1-year forward loan beginning in year 4?
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Assume that you are considering the purchase of a 20-year, noncallable bond with an annual coupon rate of 9.5%. The bond has a face value of $1,000, and it makes semiannual interest payments. If you require an 10.7% nominal yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond? раy a. $910.81 b. $874.74 c. $721.44 d. $1,000.99 O e. $901.80
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