Suppose there are two bonds you are considering: Maturity (years) Annual Coupon rate (%) Par Value...

 

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Suppose there are two bonds you are considering: Maturity (years) Annual Coupon rate (%) Par Value a. If both bonds had a required rate of return of 5%, what would the bonds' prices be? b. Re-calculate the prices of the bonds if the required return falls to 7%. Could you explain why the price increases or decreases given this change in required return? Stock A B с Cash Question 2 (20 points) Calculate the NAV (Net asset value) of the following fund, assuming 500 shares are outstanding. Calculate the percentage change in the NAV of the fund if stock C climbs to $50.7. Shares owned 1,500 4,000 2,000 Bond A 15 6 1000 n.a. price $6.75 $45.30 $32.04 $3,508 Bond B 25 4 1000 a) Will the NAV increase or decrease? Why? b) Calculated your return on your investment given the change in NAV Suppose there are two bonds you are considering: Maturity (years) Annual Coupon rate (%) Par Value a. If both bonds had a required rate of return of 5%, what would the bonds' prices be? b. Re-calculate the prices of the bonds if the required return falls to 7%. Could you explain why the price increases or decreases given this change in required return? Stock A B с Cash Question 2 (20 points) Calculate the NAV (Net asset value) of the following fund, assuming 500 shares are outstanding. Calculate the percentage change in the NAV of the fund if stock C climbs to $50.7. Shares owned 1,500 4,000 2,000 Bond A 15 6 1000 n.a. price $6.75 $45.30 $32.04 $3,508 Bond B 25 4 1000 a) Will the NAV increase or decrease? Why? b) Calculated your return on your investment given the change in NAV

Answer rating: 100% (QA)

a Calculating the prices of Bond A and Bond B at a required rate of return of 5 Bond A Maturity 15 years Annual Coupon rate 6 Par Value 1000 To calculate the price of Bond A we need to discount the fu... View the full answer