Scenario based
A. A coupon bond that matures in 3 years paying an annual coupon of 8% (in semi-annual installments) with a face value of $1000 has an annual yield-to-maturity of 6%. The bond made its most recent interest payment yesterday, and so has 6 interest payments remaining. What is the price of the bond? Round the price to two decimal places (i.e. 123.45).
B. All else being equal, which bond will have the higher price?
Bond A: Coupon rate of 5%
Bond B: Coupon rate of 10%
C. Based on our discussions of how investors value stocks/bonds, which direction do you think this company's stock price would move based on the following news headline: "Sony Pictures earnings up due to strong online distribution of The Inteview, despite analysts' low expectations."
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No chang
D. Based on our discussions of how investors value stocks/bonds, which direction do you think this company's stock price would move based on the following news headline: "Amazon's sales +25%, earnings +10% in line with consensus estimates."
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No change
E. Consider the following fictitious headline: "Fed announces surprise new bond buying program of $50B per month". Which direction would the price of bonds move?
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No change
Which direction would interest rates move?
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No change