Question
Based on the information provided, answer the following questions. A. Jeff wants to buy a Zuteck Company bond. Zuteck is issuing a 15-year, 10% annual
Based on the information provided, answer the following questions.
A. Jeff wants to buy a Zuteck Company bond. Zuteck is issuing a 15-year, 10% annual coupon bond. If the current interest rate is 5%, how much should Jeff pay for this bond? Is Zuteck selling at a premium or discount?
B. A year later, Jeff is considering buying a Sarada Company bond. Sarada is also issuing a 15-year, 10% annual coupon bond. The current market rate on this bond is 12%. How much should Jeff pay for this bond? Is Sarada selling at a premium or discount?
C. Suppose Zuteck Company bonds mature in 20 years instead of 15. Which bonds, Zuteck Company or Sarada Company, have a lower interest rate risk?
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