ABC corporation has outstanding bonds with a face value of $1,000 that mature in ten years. The coupon rate is 9% and co
Posted: Thu Dec 23, 2021 9:11 am
ABC corporation has outstanding bonds with a face value of
$1,000 that mature in ten years. The coupon rate is 9% and coupons
are paid semiannually.
(A) Suppose market interest rates rise, so that investors
require a return of 12% on ABC bonds. What is the intrinsic
value of the bond if it is priced to yield 12%?
(B) Suppose you purchased an ABC bond at its
82.75 quoted market price. Now, interest rate have fallen and
investors require a return of 9% on these bonds. If you sell
the bond when it is priced to yield 9%, what is your gain or
loss?
$1,000 that mature in ten years. The coupon rate is 9% and coupons
are paid semiannually.
(A) Suppose market interest rates rise, so that investors
require a return of 12% on ABC bonds. What is the intrinsic
value of the bond if it is priced to yield 12%?
(B) Suppose you purchased an ABC bond at its
82.75 quoted market price. Now, interest rate have fallen and
investors require a return of 9% on these bonds. If you sell
the bond when it is priced to yield 9%, what is your gain or
loss?