You subscribe, today, to a bond loan, repayment in 4 years, bearing a nominal interest of...

  

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You subscribe, today, to a bond loan, repayment in 4 years, bearing a nominal interest of 5% (Par value: 100). One year later, on the day prior to first coupon payout, the bond market has changed: the yield to maturity of a bond similar to the one you bought is 6%. a) What is the price of your bond on this date? On the same day (one year later), the effective rate is 6%. The company whose bond you hold then decides to issue a new bond, with a par value of 100 and a coupon rate of 5%, redeemable at maturity in 3 years. b) Do you think that investors will buy this new bond? c) What advice would you give the company to make this loan attractive? You subscribe, today, to a bond loan, repayment in 4 years, bearing a nominal interest of 5% (Par value: 100). One year later, on the day prior to first coupon payout, the bond market has changed: the yield to maturity of a bond similar to the one you bought is 6%. a) What is the price of your bond on this date? On the same day (one year later), the effective rate is 6%. The company whose bond you hold then decides to issue a new bond, with a par value of 100 and a coupon rate of 5%, redeemable at maturity in 3 years. b) Do you think that investors will buy this new bond? c) What advice would you give the company to make this loan attractive?

Answer rating: 100% (QA)

a To determine the price of the bond one year later we need to calculate the ... View the full answer