(a) Consider a 14-year, 9.5% corporate bond with face value $10,000. Assume that the bond pays...

(a) Consider a 14-year, 9.5% corporate bond with face value $10,000. Assume that the bond pays semi-annual coupons. Compute the fair value of the bond today if the nominal yield-to-maturity is 11% compounded semi-annually.

(b) Consider a 11-year, corporate bond with face value $1,000 that pays semi-annual coupon. With the nominal yield-to-maturity equal to 10%, the bond is selling at $802.5550. Find the coupon rate for this bond. Assume that the market is in equilibrium so that the fair value of the bond is equal to the market price of the bond.

(c) Consider a 4-year, 5% annual coupon bond with a face value of $10,000, which was issued three years ago. The bond just paid the coupon. Therefore, this bond has one year to maturity, and the next payment of the face and coupon will be made in exactly one year, after which the bond will cease to exist. If the bond defaults before next year, it will pay total of $8,000 in one year. The effective 1-year risk-free rate is 3.55%. If the bond is currently selling at $9,501.50, compute the risk-neutral probability that the bond will default within one year.

Expert Solution

a)

b)

jeff jeffy answered 2 years ago

Consider a 11-year, corporate bond with face value $1,000 that pays semi-annual coupon. With the nominal...

Consider a 11-year, corporate bond with face value $1,000 that pays semi-annual coupon. With the nominal yield-to-maturity equal to 10%, the bond is selling at $802.5550. Find the coupon rate for this bond. Assume that the market is in equilibrium so that the fair value of the bond is equal to the market price of the bond.

7. Pat pays $10,000 for a newly issued two-year government bond with a $10,000 face value...

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Consider a 10-year bond with a face value of $100 that pays an annual coupon of...

Consider a 10-year bond with a face value of $100 that pays an annual coupon of 8%. Assume spot rates are flat at 5%. a.Find the bond’s price and modified duration. b.Suppose that its yields increase by 10bps. Calculate the change in the bond’s price using your bond pricing formula and then using the duration approximation. How big is the difference? c.Suppose now that its yields increase by 200bps. Repeat your calculations for part b.

Consider a 2-year Treasury bond with a face value of $100 and that pays coupons at...

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A corporate bond has a face value of $10,000, a coupon rate of interest of 8.25% per annum, payable semi-annually, and six and a half years remaining to maturity. The market interest rate for bonds of similar risk and maturity is currently 9.5% per annum, what is the present value of the bond?

Consider a 4-year, 5% annual coupon bond with a face value of $10,000, which was issued...

Consider a 4-year, 5% annual coupon bond with a face value of $10,000, which was issued three years ago. The bond just paid the coupon. Therefore, this bond has one year to maturity, and the next payment of the face and coupon will be made in exactly one year, after which the bond will cease to exist. If the bond defaults before next year, it will pay total of $8,000 in one year. The effective 1-year risk-free rate is 3.55%....

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(a) Consider a 14-year, 9.5% corporate bond with face value $10,000. Assume that the bond pays...

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