Bond features and pricing explained in everyday language
Not what you're looking for?
3 $1,000 face value, 10 yr, noncallable bonds, same risk, YTM's are equal.
Bond 8 has an 8% annual coupon
Bond 10 has a 10% annual coupon
Bond 12 has a 12% annual coupon
Bond 10 sells at par. If interest rates are constant for next 10 years, does it make sense that they should all have the same price and the bond prices should remain at the current level until maturity?
Purchase this Solution
Solution Summary
Bond pricing seems to be difficult for everyone to really grasp. This discussion gives you the pieces in everyday language and a template in excel so you can "play" with the pieces and see how bond price moves around to verify for yourself what the discussion claims.
Solution Preview
See attached file.
No, these bonds will not have the same prices and the prices will not stay at their current level until maturity. Let's answer these individually.
First, the bonds will not have the same price at issue (when initially sold). If Bond 10 sold at "par" that means that the market rate of interest was 10%. If the other two bonds were sold (issued) at the same time, they would also yield the same effective ...
Education
- BSc, University of Virginia
- MSc, University of Virginia
- PhD, Georgia State University
Recent Feedback
- "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
- "Thank, this is more clear to me now."
- "Awesome job! "
- "ty"
- "Great Analysis, thank you so much"
Purchase this Solution
Free BrainMass Quizzes
Introduction to Finance
This quiz test introductory finance topics.
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
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.