Consider two bonds: bond XY and bond ZW. Bond XY has a face value of $1,000 and
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Consider two bonds: bond XY and bond ZW. Bond XY has a face value of $1,000 and 10 years to maturity and has just been issued at par. It bears the current market interest rate of 7% (i.e. this is the yield to maturity for this bond). Bond ZW was issued 5 years ago when interest rates were much higher. Bond ZW has face value of $1,000 and pays a 13% coupon rate. When issued, this bond had a 15-year, so today its remaining maturity is 10 years. Both bonds make annual coupon payments.
- a) What is the price of Bond ZW, given that market interest rates are 7%?
- b) Compute the duration for both bonds (use Excel).
Related Book For
Corporate Finance
ISBN: 9781265533199
13th International Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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