Use the below information to answer the questions below: Issuer Microsoft Short Microsoft Long Price Coupon...
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Use the below information to answer the questions below: Issuer Microsoft Short Microsoft Long Price Coupon % 10.00 10.00 Maturity 1 year from today 15 years from today Yield to Maturity % Interest payments have just been paid. Interest is paid annually and the next interest payment is one year from today. The final interest payment is on the day the bond matures (all bonds have a par value of $1000). For both Microsoft's Short and Long term bonds, calculate the bond prices in dollars under the following three scenarios: 6. When the required interest rate (yield to maturity) is 10 percent? 7. When the required interest rate (yield to maturity) is 5 percent? 8. When the required interest rate (yield to maturity) is 20 percent? 9. Based on the answers above, what can be observed regarding the: a. Fluctuation in bonds prices relative to changes in interest rates? For example, when interest rates increase (decrease) what is the impact on bond prices? b. Magnitude of the change for the short term bond compared with the long term bond? Use the below information to answer the questions below: Issuer Microsoft Short Microsoft Long Price Coupon % 10.00 10.00 Maturity 1 year from today 15 years from today Yield to Maturity % Interest payments have just been paid. Interest is paid annually and the next interest payment is one year from today. The final interest payment is on the day the bond matures (all bonds have a par value of $1000). For both Microsoft's Short and Long term bonds, calculate the bond prices in dollars under the following three scenarios: 6. When the required interest rate (yield to maturity) is 10 percent? 7. When the required interest rate (yield to maturity) is 5 percent? 8. When the required interest rate (yield to maturity) is 20 percent? 9. Based on the answers above, what can be observed regarding the: a. Fluctuation in bonds prices relative to changes in interest rates? For example, when interest rates increase (decrease) what is the impact on bond prices? b. Magnitude of the change for the short term bond compared with the long term bond?
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Answer rating: 100% (QA)
Answer To calculate the bond prices in dollars under the given scenarios we will use the formula for present value of a bond P C1 rn FV1 rn Where P Pr... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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