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Question 4 On June 30, 2020, William wants to invest in a newly issued 5-year AAA corporate bonds as shown below : Description Coupon Price
Question 4
On June 30, 2020, William wants to invest in a newly issued 5-year AAA corporate bonds as shown below :
Description | Coupon | Price | Callable | Call Price |
Amex due June 30, 2025 | 8% | 100 | Noncallable | N/A |
Goggle due June 30, 2025 | 8.4% | 100 | Callable | 101 |
- Suppose that market interest rates goes down by 100 basis points (i.e. 1%). Differentiate the effect of this decline on the price of each bond.
- Should William prefer the Goggle over the Amex bond when rates are expected to increase or decrease ?
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