Rubinstein is deciding on choosing from two different bonds for her personal portfolio. Natural Gas Corp. issued
Fantastic news! We've Found the answer you've been seeking!
Question:
Rubinstein is deciding on choosing from two different bonds for her personal portfolio.
Natural Gas Corp. issued a bond with a face value of $20,000 and maturity of 20 years. The bond pays $1,100 every 6 months.
Deepsea Oil Corp. issued a 11% coupon bond with a face value of $20,000 and a maturity of 10 years. The coupons will be paid on a semiannual basis.
The real interest rate is 5% compounded semiannually, the nominal interest rate is 7% compounded semiannually.
(a) What are the prices of the bonds issued by Natural Gas Corp and Deepsea Oil Corp.?
(b) Please explain which bond has higher reinvestment rate risk and which bond has higher price risk?
Related Book For
Accounting Principles
ISBN: 9781119707110
14th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Jill E. Mitchell
Posted Date: