ABC has many bonds trading on the NYSW. Suppose ABC’s bonds have identical coupon rates of 8.75%

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ABC has many bonds trading on the NYSW. Suppose ABC’s bonds have identical coupon rates of 8.75% but that one issue matures in 1 year, one in 5 years, and the third in 10 years.

 

a. If the yield to maturity for all three bonds is 7%, what is the fair price of each bond?

b. If the yield to maturity for all three bonds is 6%, what is the fair price of each bond?

c. If the yield to maturity for all three bonds is 8%, what is the fair price of each bond?

d. Based on the fair prices at the various yields to maturity, is interest rate risk the same, higher, or lower for longer vs shorter maturity bonds?

 

Assumed that the coupon payments are made semi-annual.

    • 8 years ago
    ABC has many bonds trading on the NYSW. Suppose ABC’s bonds have identical coupon rates of 8.75%
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