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Cortyard Corp> is planning to attract $10 000 000 from capital market by issuing 2Y 9% coupon bonds. Coupon is paid annually. Cortyard Corp has

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Cortyard Corp> is planning to attract $10 000 000 from capital market by issuing 2Y 9% coupon bonds. Coupon is paid annually. Cortyard Corp has a A- credit rating, which corresponds to 1,87% annual probability of default. A 2Y Treasury rate is equal to 5%. a) Calculate a required return for Cortyard Corp (suppose that a recovery rate on Cortyard Corp>> bonds is 0; investors are risk-neutral) (4 points) Hint: a required return is the rate, at which interim payments can be reinvested. b) Estimate a fair price of Cortyard Corp bonds (3 points) and determine how many bonds must Cortyard Corp> issue to attract $10 000 000 (2 points) c) Calculate duration of Cortyard Corp bonds (3 points) d) Using duration analysis estimate the limits of Cortyard Corp bonds prices change if a underlying market rate (2Y Treasury rate) would increase or decrease by 2% (7 points) e) Discuss the virtues and flaws of duration analysis with regard to studying the changes in the treasury portfolio values in response to changes in market interest rates (6 points) Cortyard Corp> is planning to attract $10 000 000 from capital market by issuing 2Y 9% coupon bonds. Coupon is paid annually. Cortyard Corp has a A- credit rating, which corresponds to 1,87% annual probability of default. A 2Y Treasury rate is equal to 5%. a) Calculate a required return for Cortyard Corp (suppose that a recovery rate on Cortyard Corp>> bonds is 0; investors are risk-neutral) (4 points) Hint: a required return is the rate, at which interim payments can be reinvested. b) Estimate a fair price of Cortyard Corp bonds (3 points) and determine how many bonds must Cortyard Corp> issue to attract $10 000 000 (2 points) c) Calculate duration of Cortyard Corp bonds (3 points) d) Using duration analysis estimate the limits of Cortyard Corp bonds prices change if a underlying market rate (2Y Treasury rate) would increase or decrease by 2% (7 points) e) Discuss the virtues and flaws of duration analysis with regard to studying the changes in the treasury portfolio values in response to changes in market interest rates (6 points)

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