1. Based on the following information concerning Bank One’s bonds: Par value: $1,000 Years to maturity: 15 years Coupon rate: 8% paid semiannually Beta: 0.1 Risk-free rate: 4% Market risk premium: 5% What is the expected price of the bond in 4 years? You believe that the risk free rate then will remain at 4% but the market risk premium is like to rise to 10% due to a worsening economic outlook.
a. $1,259.33 b. $1,251.48 c. $1,274.01 d. $1,282.64 e. $1,263.87.
2. Ten years ago PPO Co. issued bonds with a maturity of 15 years, a coupon rate of 8% paid semi-annually, and a par value of $1,000. Today, the market interest rate on these bonds is 8%. What is the expected price of the bonds today?
a. $1,100
b. $910
c. $870
d. $1,000
e. $900