In: Finance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 4.5%
Y1 | Y2 | Y3 | Y4 |
2% | 4.50% | 7% | 9.50% |
(9.5-2)/3+2% |
2.Bond price at 8% = 1000*C*PVIFA(8%,15)+1000*PVIF(8%,15)=742.975, where C=0.05/5%
Bond price at 9% = 1000*.05*PVIFA(9%,15)+1000*PVIF(9%,15)=678.035
Loss in capital = 64.94
To recover 64.94, annual coupon payments are reinvested at 9% and present value of interest received should be equal to 64.94
64.94= 50*9%^n
n=18.26 years plus 1 year as coupon payment is received at year 1 end. hence total reinvestment period = 19.26 years.
Ans.none of the above
3. none of the above. Usually calculated as difference between risky bond and treasury bills/bonds.
4.d
5. A bond rating refers to the company's ability/likelihood to repay the issued debt. Highest ratings for Long term bonds - Moody's is Aaa and S&P is AAA. Probability of repayment reduces as rating decreases. Investment Grade bonds are rated Baa3/BBB- or higher by Moody’s/S&P. Highest rating for Moody's is Aaa and S&P AAA. anything below this rating is non investment grade.