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[Discussion] - 6 Handout

# [Discussion] - 6 Handout - 3 What is the worth of the bond...

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Discussion Questions 1. I've invented a great game. If you roll 1-3 on a dice, I give you \$10. If you roll 4-6, you give me \$20. Isn't this a great game? Why don't you play? (0.5)(+10) + (0.5)(-20) = -5 . Not worth it, negative value 2. I have a zero-coupon bond with a face value of \$1000. It matures in 5 years. With a yield to maturity of 5%, what is it worth right now? 1000/(1.05)^5
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Unformatted text preview: 3. What is the worth of the bond if we add yearly coupons with a coupon rate of 10%? 1000/(1.05)^5 + 100/(0.05) * (1 – 1/(1.05)^5) 4. Complete the following table: Scenario Circle the correct one YTM goes up Discount or Premium Bond YTM goes down Discount or Premium Bond Coupon Rate goes up Discount or Premium Bond Coupon Rate goes down Discount or Premium Bond...
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