A quick look at bond quotes will tell you that GMAC has many different issues of bonds oustanding. Suppose the four of them have identical coupon rates of 7.25% but mature on four different dates. One matures in 2 years, one in 5 years, one in 10 years, and the last in 20 years. Assume that they all made coupon payments yesterday.
a. If the yield curve were flat and all four bonds had the same yield to maturity of 9%, what would be the fair price of each bond today?
b. Suppose that during the first hour of operation of the capital markets today, the term structure shifts and the yield to maturity of all these bonds changes to 10%. What is the fair price of each bond now?
c. Suppose that in the second hour of trading, the yield to maturity of all these bonds changes once more to 8%. Now what is the fair price of each bond?
d. Based on the price changes in response to the changes in yield to maturity, how is the interest-rate risk a function of the bond's maturity? That is, is interest-rate risk the same for all four bonds, or does it depend on the bond's maturity?
...bond, and compare these with the coupon rate. If the interest rate on the 1-year bonds is now at 12%, calculate the current yield and yield to maturity for ...
... and precise answers will be more suitable for comparison. ... earn higher returns on a firm's bonds than on ... 6) Are high -yield securities an acceptable investment ...
... for: US treasuries Municipal bonds Corporate bonds Required: Discuss ... theory would imply about the yield curve ... Compare and contrast the yields and maturities for ...
... c. If the expectations theory of the yield curve is ... rates are 6%. What is the value of this bond? ... suddenly (and immediately) jump to 8%? Compare the percentage ...
... to maturity on a 10-year Treasury coupon bond compare to that ... b. The yield on a 10-year bond would have ... to tell without knowing the coupon rates of the bonds. ...
... allowing for risk) for investors to compare alternative investments ... The rate of return on bonds most often quoted for investors is the yield to maturity...
... If we compare, we can see that Yield to maturity = 6.60 ...Yield to maturity is the smallest because of the higher price paid to purchase the bond and hold ...
... In addition, she also wants you to compare the bonds... The four triple-A rated bonds are as follows ...Maturity Date Yield to Company Coupon (Years) Price Maturity E ...
