Question
Johnson & Johnson decides to issue a 15-year corporate bond. The bond carries a coupon of 6%, which represents the underlying 15-Year Treasury Note yield
Johnson & Johnson decides to issue a 15-year corporate bond. The bond carries a coupon of 6%, which represents the underlying 15-Year Treasury Note yield of 4% plus a 2% credit spread. If the yield-to-maturity (YTM) of the bond at issuance is also 6%, what is the price of the bond? A year later, the 15-Year Treasury still yields 4%, but the Johnson & Johnson credit spread has widened to 3%. What is the new price of the bond? If you decided to buy $10,000 worth of Johnson & Johnson bonds at a yield of 8%, what is the NPV of that purchase?
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First lets calculate the price of the bond when issued with a YTM of 6 Given the bond characteristics and assuming semiannual payments Coupon payment ...Get Instant Access to Expert-Tailored Solutions
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Get StartedRecommended Textbook for
Fundamentals Of Corporate Finance
Authors: Jonathan Berk, Peter DeMarzo, Jarrad Harford
5th Global Edition
1292437154, 978-1292437156
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