Suppose a corporate bond that reaches maturity on 09/01/2040 is trading today (9/29/2020) for $803. The...
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Suppose a corporate bond that reaches maturity on 09/01/2040 is trading today (9/29/2020) for $803. The bond certificate indicates that the stated coupon rate for this bond is 6% and that the coupon payments are to be made semiannually. a. Compute YTM of the bond. Clearly state your Excel / Calculator inputs b. Suppose the bond's credit rating is B. Would you use its YTM as a reasonable estimate of the investment rate of return on the bond? Explain your answer c. If your answer to b) is "no", give two alternative estimates of the investment return on the bond. Assume that the risk free-rate is 2.5% and market expected rate of return is 8%. (in your estimates use non-recession values and assume that in default debtholders lose 60% of the promised cashflows) Suppose a corporate bond that reaches maturity on 09/01/2040 is trading today (9/29/2020) for $803. The bond certificate indicates that the stated coupon rate for this bond is 6% and that the coupon payments are to be made semiannually. a. Compute YTM of the bond. Clearly state your Excel / Calculator inputs b. Suppose the bond's credit rating is B. Would you use its YTM as a reasonable estimate of the investment rate of return on the bond? Explain your answer c. If your answer to b) is "no", give two alternative estimates of the investment return on the bond. Assume that the risk free-rate is 2.5% and market expected rate of return is 8%. (in your estimates use non-recession values and assume that in default debtholders lose 60% of the promised cashflows)
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Maturity date 912040 Todays date 9292020 Current price ... View the full answer
Related Book For
Bank Management and Financial Services
ISBN: 978-0078034671
9th edition
Authors: Peter Rose, Sylvia Hudgins
Posted Date:
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