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_B16_problem

# _B16_problem - B16(Interestraterisk). yesterday...

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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 resu B16. (Interest-rate risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange. Su coupon rates of 9.125% but that one issue matures in 1 year, one in 7 years, and the third in 15 years. Assu

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_B16_problem - B16(Interestraterisk). yesterday...

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