IvanRivera6.Unit3.Project-Value of Bonds and Common Stocks

IvanRivera6.Unit3.Project-Value of Bonds and Common Stocks...

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Value of Bonds and Common Stocks Corporate Finance MT480 Unit 3 Project, Prof. Weaver Ivan Rivera 1. Suppose that 5-year government bonds are selling on a yield of 4 percent. Value a 5-year bond with a 6 percent coupon. Start by assuming that the bond is issued by a continental European government and makes annual coupon payments. Then rework your answer assuming that the bond is issued by the U.S. Treasury, so that the bond pays semiannual coupons and the yield refers to a semiannually compounded rate. ytm 4% Period Coupon Rate CF PV 1 6% 60 58 2 6% 60 55 3 6% 60 53 4 6% 60 51 5 6% 1060 871 European Government 1,089 .04 Value of the Bond Period Coupon Rate CF PV 1 3% 30 29 2 3% 30 29 3 3% 30 28 4 3% 30 28 5 3% 30 27 6 3% 30 27 7 3% 30 26 8 3% 30 26 9 3% 30 25 10 3% 1030 845 US Treasury 1,089 Value of the
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.83 Bond 2. Refer again to Practice Question 1. How would the bond value in each case change if interest rates fall to 3 percent? 6.
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IvanRivera6.Unit3.Project-Value of Bonds and Common Stocks...

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