On Jan 1, 2012, FIN307 is considering the newly issued 10-year AAA corporate bond, which is...

On Jan 1, 2012, FIN307 is considering the newly issued 10-year AAA corporate bond, which is due Jan 1, 2022, with a coupon rate of 6% per year paid every 6 months. The bond is traded at par. Suppose the market interest rate declines by 100 bps (i.e., 1%), what is the duration and modified duration (before interest rate change) and the effect of the market interest decline on the bond price?

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

On Jan 1, 2012, Roger Company issued $2,000,000, 9%, 5-year bonds dated Jan 1, 2012, at...

On Jan 1, 2012, Roger Company issued $2,000,000, 9%, 5-year bonds dated Jan 1, 2012, at 97. The bonds pay semiannual interest on Jan 1 and July 1. The company uses the straight-line method of amortization and has a calendar year-end. Prepare all the journal entries on the dates Jan 1 and July 1.

3) Janice Kerrman is considering two 10-year AAA corporate bonds: Sentinel bond is a noncallable 4%...

3) Janice Kerrman is considering two 10-year AAA corporate bonds: Sentinel bond is a noncallable 4% coupon bond priced at $100 Colina bond is a 4.5% coupon bond priced at $100 callable at a price of $102. Both bonds pay coupons semiannually. a) Suppose market rates decline by 1%. Contrast the effect of this decline on the price of each bond. (15 Pts) b) Which bond should Kerrman prefer if rates are expected to rise or fall? (10 Pts)

ACC Company issued a 10-year, 8%, $1,000,000 bond on Jan 1, 2009. The bond pays interest...

ACC Company issued a 10-year, 8%, $1,000,000 bond on Jan 1, 2009. The bond pays interest every December 31, with the principal to be paid at the end of 10 years. The market interest rate (effective interest rate) on Jan 1, 2009 was 5%. The market interest rate on December 31,2012 was 4%. (1) Compute the Book value of bonds liability on January 1, 2012. (2) Record the journal entry about interest expense on December 31, 2012.

Compare and contrast a 5-year AAA corporate bond with a 5-year Treasury Note. Which would typically...

Compare and contrast a 5-year AAA corporate bond with a 5-year Treasury Note. Which would typically offer a higher interest rate? Why? What risk affects both types of bonds?

On December 31, 2012, a company issued a 3-year, 10% annual coupon bond with a face...

On December 31, 2012, a company issued a 3-year, 10% annual coupon bond with a face value of $100,000. Calculate the book value of the bond at year-end 2012, 2013, and 2014, and the interest expense for 2013, 2014, and 2015, assuming the bond was issued at a market rate of interest of (A) 10%, (B) 9%, and (C) 11%.

A newly issued 10-year maturity, 6% coupon bond making annual coupon payments is sold to the...

A newly issued 10-year maturity, 6% coupon bond making annual coupon payments is sold to the public at a price of $920. What will be an investor’s taxable income from the bond over the coming year? The bond will not be sold at the end of the year. The bond is treated as an original issue discount bond. (Round your answer to 2 decimal places.) Taxable Income:

James buys a newly issued, $1,000 face value, 10-year maturity bond with a coupon rate of...

James buys a newly issued, $1,000 face value, 10-year maturity bond with a coupon rate of 12% (coupons are semi-annual) at $1,000. What is the current yield to maturity (YTM, nominal and semi-annually compounded) of this bond? A. 13.42% B. 10% C. 8% D. 12%

1. Term BondCompany A issued an 8 year, $2,000,000 5% bond on Jan. 1, 2018. Interest...

1. Term BondCompany A issued an 8 year, $2,000,000 5% bond on Jan. 1, 2018. Interest is payable each December 31. The bond sold for $1,958,000. The issue costs were $30,000. The issue costs are merged with any discount or premium to calculate a single effective interest rate. 60% of the bonds are retired on April 1, 2021 at 101 plus accrued interest.Calculate the effective interest rate. Make all needed entries on January 1, 2018, December 31, 2018, April 1,...

Given a 1 year corporate bond issued at par, with a 0.75%probability of default and...

Given a 1 year corporate bond issued at par, with a 0.75% probability of default and 25% recovery rate, what is the credit spread for the risky bond if an identical duration sovereign bond has a 5% yield?

You are comparing a 10-year corporate bond and a 30-year corporate bond for the same firm....

You are comparing a 10-year corporate bond and a 30-year corporate bond for the same firm. Other firms of the same risk-class have a default risk premium of 1.80%, and a liquidity risk premium of 2.60%. The current return on a 10-year treasury is 3.60%. The maturity premium on the 10-year treasury is 1.80%, what is the maturity risk-premium for the 30-year bond if the yield to maturity is 10.70%?

Subjects