Berk Bhd issues bonds that pay interest semi-annually and have maturities of 1 year and 30 years. The bonds have a face value of RM1,000 and an annual coupon rate of 10 percent. i) If investors have demanded an interest rate of 5 percent on the bond investment, what is the maximum prices to pay for the 1-year bond and 30-year bond? ii) Suppose that the interest rate has increased to 20%, calculate the values of the 1-year bond and 30-year bond.
Berk Bhd issues bonds that pay interest semi-annually and have maturities of 1 year and 30 years. The bonds have a face value of RM1,000 and an annual coupon rate of 10 percent. i) If investors have demanded an interest rate of 5 percent on the bond investment, what is the maximum prices to pay for the 1-year bond and 30-year bond? ii) Suppose that the interest rate has increased to 20%, calculate the values of the 1-year bond and 30-year bond.
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 16P
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Berk Bhd issues bonds that pay interest semi-annually and have maturities of 1 year and 30 years. The bonds have a face value of RM1,000 and an annual coupon rate of 10 percent.
i) If investors have demanded an interest rate of 5 percent on the bond investment, what is the maximum prices to pay for the 1-year bond and 30-year bond?
ii) Suppose that the interest rate has increased to 20%, calculate the values of the 1-year bond and 30-year bond.
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