Lin has a B rated $30,000 bond with a coupon of 2.5% maturing in 2030 that is currently yielding 3.2%. This year, the Fed is expected to lower interest rates by 50 basis points. Explain the effect on the price, yield and cash flow of the bond. (indicate if it will increase or decrease)

Lin has a B rated $30,000 bond with a coupon of 2.5% maturing in 2030 that is currently yielding 3.2%. This year, the Fed is expected to lower interest rates by 50 basis points. Explain the effect on the price, yield and cash flow of the bond. (indicate if it will increase or decrease)

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 8MC: Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for...

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On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

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Lin has a B rated $30,000 bond with a coupon of 2.5% maturing in 2030 that is currently yielding 3.2%. This year, the Fed is expected to lower interest rates by 50 basis points. Explain the effect on the price, yield and cash flow of the bond. (indicate if it will increase or decrease)

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