Question
Consider a 4-year bond which has a face value of $100 and pays annual coupons at a rate of 5.8%. (a) Suppose that the annually
Consider a 4-year bond which has a face value of $100 and pays annual coupons at a rate of 5.8%.
(a) Suppose that the annually compounded interest rate is 7% for all maturities. What is the price of the bond?
(b) Assuming no change in the interest rate, what is the price of the bond after one year has passed?
(c) Now suppose that after one year the interest rate decreases from 7% to 6.2%. What is the price of the bond after one year?
(d) How much of the price change in (c) is attributable to moving to maturity and how much is attributable to a decrease in the interest rate?
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Operations And Supply Chain Management
Authors: F. Robert Jacobs, Richard Chase
14th Edition
978-0077824921, 78024021, 9780077823344, 007782492X, 77823346, 978-0078024023
