Provide your answers/solutions in the answer space provided below. Answer all questions. Susan bought a 15-year...

Provide your answers/solutions in the answer space provided below.

Answer all questions.

Susan bought a 15-year bond when it was issued by Octodan Corporation 3 years ago (NOTE: the bond was issued 3 years ago. In calculating price today, remember it has only 12 years remaining to maturity). The bond has a $1,000 face value, an annual coupon rate equal to 8 percent and the coupon is paid every six months. If the yield on similar-risk investments is 10 percent,
1. What is the current market value (price) of the bond?
2. Suppose interest rate levels rise to the point where such bonds now yield 12 percent. What would be the price of Octodan bond?
3. At what price would Octodan bonds sell if the yield on them was 7 percent?
4. What do you observe regarding the relationship between interest rate (YTM) bond’s price?
5. What do you observe regarding the relationship between coupon, YTM and the bond’s price?

Solutions

Expert Solution

a) bond price when ytm is 10%

b)bond price when yield is 12%

c) bond price when yield is 7%

d) if yield increase bond price decreases

if yield decrease bond price increase

there relationship between bond and yield is inverse relationship

e) if coupon>yield bond price is at premium 8%>7% bond price is 1080.29 which is more than face

if coupon<yiled bond price is at dicount 8<12% bond price is 748.99 , which is lees than face value

plz leave me positive rating thank you

jeff jeffy answered 1 year ago

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