Solved: Shorter-term bond when interest rates change, Finance Basics

+44 141 628 6080
[email protected]

Shorter-term bond when interest rates change

Problem:

An investor has 2 bonds in his portfolio that have a face value of $1000 and pay a 10% annual coupon. Bond L matures in 15 years, while Bond S matures in 1 year.

A. What will the value of each bond be if the going interest rate is 5%, 8%, 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made on Bond L.

B. Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change?

View Complete Question

Solution Preview :

Prepared by a verified Expert

Finance Basics: Shorter-term bond when interest rates change

Reference No:- TGS02055522

Now Priced at $20 (50% Discount)

Recommended (90%)

Rated (4.3/5)

Have a Question? (oR Write a Review)

Write atleast 100 words!!

Recent Questions Asked Finance Basics

Q : How many of the oid bonds must cosmic issue

If both bonds are to provide investors with the same effective yield, how many of the OID bonds must Cosmic issue to raise $3,000,000?

Q : What are the bonds nominal yield to maturity

What are the bond's nominal yield to maturity and its nominal yield to call? Would an investor be more likely to earn the YTM or the YTC?

Q : Compute the realized rate of return for an investor

Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called.

Q : Artistic treasury of the world

Germany is a great country. It has contributed immensely to the world's artistic treasury.

Q : Shorter-term bond when interest rates change

Why does the longer-term bond's price vary more than the price of the shorter-term bond when interest rates change?

Q : Calculate the after-tax cash flow for last year

The company also purchased new capital equipment for $300,000 last year. Calculate the after-tax cash flow for last year.

Q : Determine price for given market rate of return

What is its price if the market's rate of return is 16%? (Show all work/calculations/formulas).

Q : Why long-term proceeds to pay employees salaries

Discuss the reason why long-term proceeds to pay employees' salaries is a bad idea.

Q : Is di in compliance with the bond covenants

Is DI in compliance with its bond covenants? Why or Why Not?

1954510

Questions
Asked

3,689

Active Tutors

1425673

Questions
Answered

Start Excelling in your courses, Ask a tutor for help and get answers for your problems !!

ask Question

Asked Questions

All sentient beings stage of the expanding circle

An individual who has reached the 'All Sentient Beings' stage of the Expanding Circle of Moral Concern would likely consider the welfare of:

What are pros of the intervention in behavioral management

What are the pros of the intervention in the behavioral management approach of mindfulness training for pain management?

Develop understanding of emotional and socio-cultural lived

Critically evaluate object relational (modern) psychodynamic theory Develop an understanding of the emotional and socio-cultural lived experience

Understanding of stress in middle childhood children

Article explores the understanding of stress in middle childhood children, particularly in a supportive learning environment.

What best describes the dreams within conflict intervention

Which of the following best describes the "Dreams Within Conflict" intervention? Review Later

Altering the scores in the outcome records

In this scenario, the counseling supervisor discovers that their colleague has been altering the scores in the outcome records of a multi-site study

What is the puzzle in the tomasello reading

In the Tomasello reading, what is the puzzle? Group of answer choices Causation: tool use and intelligence have a chicken-and-egg relationship.