An investor places $800,000 in 30-year bonds (12 percent coupon rate), and interest rates decline by 3 percent. Use Table 12–4 on page 327 to determine the current value of the portfolio.
Answer to relevant QuestionsUse Table 12–4 on page 327 to describe the worst possible scenario for a $1,000 bond based on yield change, years to maturity, and coupon rate. What would be the price of the bond? Given the facts in problem 2, what would be the price if interest rates go down to 8 percent? (Once again, do a semiannual analysis.) What is meant by the dilutive effect of convertible securities? A firm has warrants outstanding that allow the holder to buy one share of stock at $25 per share. Also, assume the stock is selling for $30 per share, and the warrants are now selling for $7 per warrant (this, of course, is ...Explain how options can be used to protect a short position.
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