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?
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 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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F13ffb487-410c-4808-947c-8212d0ee5563%2Ff74629de-3645-4c4c-a029-017977851453%2Fa90dwve_processed.png&w=3840&q=75)
Transcribed Image Text: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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