Question
Runescape Corporation is debating issuing a bond to raise some money for a new chemical engineering project designed to aid the United States Military. Assume
Runescape Corporation is debating issuing a bond to raise some money for a new chemical engineering project designed to aid the United States Military. Assume the following regarding OsCorps new funding: The company needs to raise $100,000 The bond will pay semi-annual coupons of 5%* The bonds yield to maturity will be 7% annually The bond reaches maturity in 3 years The risk-free rate of return is 3% annually *Hint: Remember to normalize rates by 2 for semi-annual coupon payments. Also, USE the formula for convexity changes with semi-annual payments:
1. What is the price of the bond? 2. What is the Duration of the bond? 3. What is the Modified Duration of the bond? 4. What is the Convexity of the bond? 5. What does Convexity Measure?
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