(a) The LUFTUS corp offers a 6% bond with a current market price of $875.05 .
The yield to maturity is 7.34% .
The face value is $1,000.
Interest is paid semiannually.
How many years is it until this bond matures?
(b) A corporate bond with a face value of $1,000 matures in 4 years and has an 8% coupon paid at the end of each year.
The current price of the bond is $932.
What is the yield to maturity for this bond?
(a) The distributions of rates of return for security aa and security bb are given below :
State Of Economy Probability of Occurring Security
Boom 0.2 30% -10%
Normal 0.6 10% 5%
Recession 0.2 -5% 50%
Based on the above information can we conclude that any rational risk-averse investor will add security to a well-diversified portfolio over security?
Why? Or why not ?
This response provides a detailed solution in Excel on how to solve finance problems on portfolio security and bond maturation.