Question: Please Answer Q #4 Suppose Galaxy Corp. has a bond issue [$1,000 face value) that pays a coupon of 4% per year. The bond matures

Please Answer Q #4

  1. Suppose Galaxy Corp. has a bond issue [$1,000 face value) that pays a coupon of 4% per year. The bond matures in 20 years. What is the value of the bond?

P = 40(13.59)+1000(0.456)=$999.6

  1. Now, suppose in the second year. (how many years to maturity?), interest rates on a similar type of bond increases to 5%. What is the value of the bond?

Po =40(12.085)+1000(0.396)=$879.4

  1. Next, after another year, with the market rate still at 5%, what will be the value of the bond?

P=40(11.69)+1000(0.416)=$883.6

  1. Calculate the one-year holding period return between 2 and 3?

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