An investor is considering a bond that currently sells at a discount ($953) to the face value of $1,000. The coupon rate is 9.25% paid semiannually. If there are 15 years left on the bond what is the yield to maturity?© BrainMass Inc. brainmass.com October 25, 2018, 7:18 am ad1c9bdddf
Philadelphia Electric Bonds
Philadelphia Electric has many bonds trading on the New York Stock Exchange. Suppose PhilEl's bonds have identical coupon rates of 9.125% but that one issue matures in 1 year, one in 7 years, and the third in 15 years. Assume that a coupon payment was made yesterday.
1. If the yield to maturity for all three bonds is 8%, what is the fair price of each bond?
2.Suppose that the yield to maturity for all of these bonds changed instantaneously to 7%. What is the fair price of each bond now?
3.Suppose that the yield to maturity for all of these bonds changed instantaneously again, this time to 9%. Now what is the fair price of each bond?
4.Based on the fair prices at the various yields to maturity, is interest-rate risk the same, higher, or lower for longer-versus shorter-maturity bonds?