A biannual perpetuity pays $10,000 every two years. It was issued last year, so, it will...
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A biannual perpetuity pays $10,000 every two years. It was issued last year, so, it will make its next payment 1 year from now, second payment 3 years from now, and so on in perpetuity. The annual semi-annually compounded interest rate is 8%. Find the price of this perpetuity Question 2 (4 points): The yield to maturity (YTM) on zero-coupon 10-year corporate bond depends on the risk-free 1-year spot rate r and a risk parameter x according to the following formula: YTM=r+x+30rx. The YTM is expressed as annual rate with semi-annual compounding. Assume the face value of the bond is $10,000 a) (1 point) Find the bond price if r=0.08 (i.e., 6%) and x=0.02 b) (3 points) By how much the price of the bond will decrease if the risk parameter x increases by a small amount Ax. Write your answer as a linear function of Ax using linear approximation (Taylor series) A biannual perpetuity pays $10,000 every two years. It was issued last year, so, it will make its next payment 1 year from now, second payment 3 years from now, and so on in perpetuity. The annual semi-annually compounded interest rate is 8%. Find the price of this perpetuity Question 2 (4 points): The yield to maturity (YTM) on zero-coupon 10-year corporate bond depends on the risk-free 1-year spot rate r and a risk parameter x according to the following formula: YTM=r+x+30rx. The YTM is expressed as annual rate with semi-annual compounding. Assume the face value of the bond is $10,000 a) (1 point) Find the bond price if r=0.08 (i.e., 6%) and x=0.02 b) (3 points) By how much the price of the bond will decrease if the risk parameter x increases by a small amount Ax. Write your answer as a linear function of Ax using linear approximation (Taylor series)
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Solution 1 The perpetuity pays 10000 every 2 years and it will make its next payment 1 year from now ... View the full answer
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Posted Date:
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