On May 30, 2006, Janice Kerr is considering the newly issued 10-year AAA corporate bonds shown in
Question:
On May 30, 2006, Janice Kerr is considering the newly issued 10-year AAA corporate bonds shown in the following exhibit:
Description Coupon Price Callable Call Price Sentinal, due May 30, 2016 6.00% 100 Noncallable NA Colina, due May 30, 2016 6.20% 100 Currently callable 102
a. Suppose that market interest rates decline by 100 basis points (i.e., 1%). Contrast the effect of this decline on the price of each bond.
b. Should Kerr prefer the Colina over the Sentinal bond when rates are expected to rise or to fall?
c. What would be the effect, if any, of an increase in the volatility of interest rates on the prices of each bond?
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Related Book For 
Essentials Of Investments
ISBN: 9780697789945
8th Edition
Authors: Zvi Bodie, Alex Kane, Alan J. Marcus
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