Shortly after its recent bankruptcy, a new store of Macys (to be known as Macy Ways) is being formed. You have the opportunity to invest in “Macy Ways”. If you invest $200 today, you will receive a zero-coupon bond that will pay $1,000 (face value or principal) at the end of 20 years. To be adequately compensated for the risk of this bond, you know that you should expect a spread (relative to comparable Treasury securities of at least 765 basis points. We also know that that yield for a 90-day Treasury bill is 0.50%, the yield for a 5-year Treasury note is 1.00%, the yield for a 10-year Treasury bond is 1.95%, the yield for a 20-year Treasury bond is 2.35%, and the yield for a 30-year Treasury bond is 3.05%. Provide calculations to identify whether the “Macy Ways” bond appears to be a good investment. B. How much reinvestment rate risk does this bond have?

Answer rating: 100% (QA)

To determine whether the Macy Ways bond appears to be a good investment we need to compare its yield ... View the full answer