FI515_Homework3_LarryBrowning

FI515_Homework3_LarryBrowning - 5-1 Bond Valuation with...

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5-1 Bond Valuation with Annual Payments Jackson Corporation's bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the market price of these bonds? Bond price is 1000*.08 * (1 - 1.09^-12)/.09 + 1000*1.09^-12 = $928.39 5-2 YTM for Annual Payments Wilson Wonders' bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 10%. The bonds sell at a price of $850. What is their yield to maturity? Their yield to maturity is 12.475% ( 5-6 Maturity Risk Premium The real risk free rate is 3% and the inflation is expected to be 3% for the next 2 years. A 2 year Treasury security yields 6.2%. What is the maturity risk premium for the 2 year security?
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FI515_Homework3_LarryBrowning - 5-1 Bond Valuation with...

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