Digicel has raised financing by issuing 25-year bonds on January 1, 2009. They mature On December 31, 2033 and have a par value of $1,000 and a coupon rate of 8%. Coupon payments are made semi-annually.
a) What is interest rate risk? Which bond has more interest rate risk? Why?
b) What would the value of the bonds be on June 30, 2027, if interest rates had risen to 12%?
c) What would be their value on December 31, 2023, if interest rates had fallen to 6%?
d) If the bonds had a value of $925.00 on December 31, 2028, what would be their yield to maturity on that date?