Purchase Solution

A 20-year bond with a 7.50% semi-annual coupon bond

Not what you're looking for?

Ask Custom Question

Please help with the attached file.

I. A 20-year bond with a 7.50% semi-annual coupon bond was sold at par 10 years ago. Now the 10-year semi-annual payment corporate bond has a required return (or YTM) of 8.25%. Calculate the bond's market price. The par level of bonds is $1000.
II. a) What is the duration of a 2-year bond with an 8.5% semi-annual coupon and a required return (YTM) of 8.00%?
b)What is the duration of a 20-year zero-coupon bond with a required return (YTM) of 8.00%?
c)You expect a sudden decrease in market rates due to a macroeconomic change. Would you rather have in your portfolio the item from a) above or b) above?
Which item would you prefer, and specifically explain the reasons why?

Attachments
Purchase this Solution

Solution Summary

This solution is comprised of a detailed explanation to answer what is the duration of a 2-year bond with an 8.5% semi-annual coupon and a required return (YTM) of 8.00%, what is the duration of a 20-year zero-coupon bond with a required return (YTM) of 8.00%, would you rather have in your portfolio the item from a) or b), and which item would you prefer, and specifically explain the reasons why.

Solution Preview

I. A 20-year bond with a 7.50% semi-annual coupon bond was sold at par 10 years ago. Now the 10-year semi-annual payment corporate bond has a required return (or YTM) of 8.25%. Calculate the bond's market price. The par level of bonds is $1000.
We need to calculate how much the bonds have been issued by using the formula as follows: -

where B is the issued price
C is the coupon payment
r is the current interest rate
n is the period

Since the bond issues 10 years ago, its remaining life is 10 years. You need to multiply the remaining life by 2 because the company pays interest semiannually.
Coupon payment is equal to $1,000 x 7.5% = 75/2 = $37.50
The current interest ...

Purchase this Solution


Free BrainMass Quizzes
Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.