03 Bond valuation answers - Bond Question 1 Bond Question 2...

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1 15 Bond Question 1 ± Consider 20-year bond paying semi-annual coupons ± Coupon rate: 10.5% ± YTM: 12.0% ± How much would you pay for this bond? () 15 887 06 0 1 000 1 06 0 1 1 1 06 0 1 5 . 52 $ 40 40 0 . $ . , $ . . P = + + + = 16 Bond Question 2 ± $1000 face value bond with r C = 12% ± P 0 = $1195 ± Is the discount rate ( YTM ) greater than, less than or equal to the coupon rate? ± r C > YTM (selling at a premium) 17 Bond Question 3 ± Consider bonds A and B ± Both are 10 year bonds ± Bond A has a 4% annual coupon and Bond B has a 10% annual coupon ± If the discount rate is 10%, what is the price of
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This note was uploaded on 11/01/2011 for the course BUSINESS FIN301 taught by Professor Andrew during the Fall '10 term at University of Alberta.

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