On April 2, 2020, you are considering one of the newly issued 30-year, semi-annual coupon bonds shown
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Question:
On April 2, 2020, you are considering one of the newly issued 30-year, semi-annual coupon bonds shown in the following exhibit.
Issuer Coupon Price Callable Call Price
B 6.50% 101 Currently callable 110
H 5.49% 125 Non-callable NA
a) Suppose that market interest rates decline by 100 basis points. Which bond should you consider? Explain.
b) What would be the effect, if any, of an increase in the volatility of interest rates on the prices of each bond?
Expert Answer:
a When market interest rates decline by 100 basis points the prices of existing bonds typically increase This is because the newly issued bonds will o... View the full answer
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