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You are offered to buy a 4-year corporate bond in the beginning of its 7th month on its third year for $963.94. its face value
You are offered to buy a 4-year corporate bond in the beginning of its 7th month on its third year for $963.94. its face value is $1,000 and its coupon rate is 5.172% p.a. with coupon paid at the end of each quarter. Government bond rate now is 6.9%. a) Is $963.94 a good price for you to buy it or not? What is the fair price for the bond?(4 marks) b) What is the yield if you buy at the price that you have been offered? (3marks) c) If the government bond rate suddenly goes down to 4.7%, what will be the new fair value of the bond? (3 marks)
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