You are considering an investment in two different bonds. One bond matures in five years and has
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Question:
- You are considering an investment in two different bonds. One bond matures in five years and has a face value of $1,000. The bond pays an annual coupon of 9.75% and has a 10% yield to maturity. The other bond is a 4-year zero coupon bond with a face value of $1,000 and has a yield to maturity of 10%.
- What is the price of each bond?
- What is the duration of each bond? If the yield to maturity of each bond were to immediately increase to 13%, what would be the percentage change (including the correct sign) in the price of each bond (from the price found in part a)?
- If the yield to maturity of each bond were to immediately decrease to 7%, what would be the percentage change (including the correct sign) in the price of each bond (from the price found in part a)?
Related Book For
Corporate Finance
ISBN: 9781265533199
13th International Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
Posted Date: