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(Interest rate risk) Four years ago, your corporate treasurer purchased, for the firm, a 30-year bond at its par value of $1,000. The coupon rate
(Interest rate risk) Four years ago, your corporate treasurer purchased, for the firm, a 30-year bond at its par value of $1,000. The coupon rate on this security is 9 percent. Interest payments are made to bondholders once a year. Currently, bonds of this particular risk class are yielding investors 11 percent. A cash shortage has forced you to instruct your treasurer to liquidate the bond. a. At what price will your bond be sold? Assume annual compounding. b. What will be the amount of your gain or loss over the original purchase price? c. What would be the amount of your gain or loss had the treasurer originally purchased a bond with a 6-year rather than a 30-year maturity? (Assume all characteristics of the bonds are identical except their maturity periods.) d. What do we call this type of risk assumed by your corporate treasurer? a. At what price will your bond be sold? Assume annual compounding. (Round to two decimal places.) b. What will be the amount of your gain or loss over the original purchase price? Type a positive number for the gain or loss. There will be a of $ (Round to two decimal places.) c. What would be the amount of your gain or loss had the treasurer originally purchased a bond with a 6-year rather than a 30-year maturity? (Assume all characteristics of the bonds are identical except their maturity periods.) Type a positive number for the gain or loss. There will be a of $ (Round to two decimal places.) d. What do we call this type of risk assumed by your corporate treasurer? (Select the best choice below.) A. Financial risk B. Interest rate risk C. Liquidity risk D. Taxability risk
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