Question 1. (12 points) A bond with 9% coupon rate and face value of $1,000 has...
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Question 1. (12 points) A bond with 9% coupon rate and face value of $1,000 has 9 years until maturity. Suppose that market interest rate (r) for the bond is currently at 7%. (Assume annual interest payments.) a. (6 points) What is the market price of the bond (Po) now (t=0)? and the market price of the bond (P₁) for next year (t = 1) if the market interest rate (r) decreases to 5%? b. (6 points) If you buy the bond at t=0 (Po) and sell it at t = 1 (P₁), what are the expected current yield, capital gain/loss yield and total rate of return of your investment? Question 1. (12 points) A bond with 9% coupon rate and face value of $1,000 has 9 years until maturity. Suppose that market interest rate (r) for the bond is currently at 7%. (Assume annual interest payments.) a. (6 points) What is the market price of the bond (Po) now (t=0)? and the market price of the bond (P₁) for next year (t = 1) if the market interest rate (r) decreases to 5%? b. (6 points) If you buy the bond at t=0 (Po) and sell it at t = 1 (P₁), what are the expected current yield, capital gain/loss yield and total rate of return of your investment?
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a The market price of the bond Po 1000 093 93000 The mark... View the full answer
Related Book For
Introduction to Operations Research
ISBN: 978-1259162985
10th edition
Authors: Frederick S. Hillier, Gerald J. Lieberman
Posted Date:
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