A company has just raised $6 million by issuing 4000 12-year 11% bond at par. It's predicted that the market yield of this type bonds would be 2.2 per cent lower than coupon rate after 3 years. What will be the expected price of this bond after 3 years?Need the step by step process to get the answer
A company has just raised $6 million by issuing 4000 12-year 11% bond at par. It's predicted that the market yield of this type bonds would be 2.2 per cent lower than coupon rate after 3 years. What will be the expected price of this bond after 3 years?
Need the step by step process to get the answer
Current characterisitics of the bond:
Time to maturity = 12-years
Coupon = 11% bond
Priced at par
3 years down the line, expected characterisitics of the bond:
Time to matuirty = 12 - 3 = 9 years
Coupon = 11%
Market yield of this type bonds would be 2.2 per cent lower than coupon rate after 3 years.
Hence, Yield to maturity, YTM = Coupon rate - 2.2% = 11% - 2.2% = 8.80%
Frequency of the coupon payment is not stated in the question. It's customary to assume semi annual coupon payments. I am ther...
Business
Finance
Related Finance Q&A
Find answers to questions asked by student like you
Show more Q&A addQ: Consider a project lasting one year only. The initial outlay is $1,000 and the expected inflow is $1...
A: Before we get into solving this problem, let's recall two formulae and concepts:For a project lastin...
Q: And what are the expected returns for stocks A and B if the conditions are as follows? A0 0.03...
A: Calculation of Expected Return for Stock A:
Q: The credit card with the transactions described in the popup below uses the average daily balance me...
A: Credit CardIt is a card issued to customers for making payment towards goods and services. These car...
Q: Discuss the pros and cons of a 30 year, fixed rate loan. In addition, should Congress and state leg...
A: The following are some pros of a 30-year fixed rate loan:Higher tax deduction: The present tax laws ...
Q: A retail coffee company is planning to open 90 new coffee outlets that are expected to generate $15....
A: Expected cash flows at the end of year 1, C1 = $ 15.6 mnGrowth rate in the cash flows, g = 3.4% in p...
Q: Based on this equation and the data, it is greater than $1,000. to expect that Ethan's potential bon...
A: Calculating the value of intrinsic value of the bond. We have,Intrinsic value = A / (1+C)1 + A / (1+...
Q: The potential loss incurred from purchasing a call option is finite, but the potential loss to the s...
A: Let's figure out the payoff to the seller or writer of the call option at the time of expiration of...
Q: Ms. Cristiana Piccini is valuing an investment that pays her $27,000 per year for the first ten year...
A: Calculation of Value of Investment: Excel Spreadsheet:
Q: Your son has come to you for advice. He is about to enter college and has two options open to him. H...
A: As a first step, let's calculate the NPV of Pharmacy / MBA option making use of the cash flows. We w...
Sorry about that. What wasn’t helpful?
