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Unformatted text preview: a. If the yield to maturity for all three bonds is 8%, what is the fair price of each bond? Rate = 8% Rate = 8% Nper = 1 Nper = 7 PMT = 1000 x 9.125% =91.25 PMT = 1000 x 9.125% =91.25 FV =1,000 FV =1,000 PV =? PV =? Solve for PV Solve for PV Fair price of Bond $1,010.42 Fair price of Bond $1,058.57 b. Suppose that the yield to maturity for all of these bonds changed instantaneously to 7%. What is the fair Rate = 7% Rate = 7% Nper = 1 Nper = 7 PMT = 1000 x 9.125% =91.25 PMT = 1000 x 9.125% =91.25 FV =1,000 FV =1,000 PV =? PV =? Solve for PV Solve for PV Fair price of Bond $1,019.86 Fair price of Bond $1,114.52 c. Suppose that the yield to maturity for all of these bonds changed instantaneously again, this time to 9%. Rate = 9% Rate = 9% Nper = 1 Nper = 7 PMT = 1000 x 9.125% =91.25 PMT = 1000 x 9.125% =91.25 FV =1,000 FV =1,000 PV =? PV =? Solve for PV Solve for PV Fair price of Bond $1,001.15 Fair price of Bond $1,006.29 In longer maturity thee is hgh risk which yield higher return., whereas, in shorter maturity risk is low resuIn longer maturity thee is hgh risk which yield higher return....
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This note was uploaded on 04/14/2011 for the course ACC 561 taught by Professor Cole during the Spring '09 term at University of Phoenix.
 Spring '09
 COLE

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