1. You are financial advisor for a friend who addresses the following issues: a) A company issues £10m face value of five-year zero-coupon bonds when the interest rate is 6%. What is the initial price of the bond? b) A coupon bond of £100 pays annual coupons of 5% at the end of years 1, 2 and 3 (when it also matures). If the discount rate is 8%, what is its price today? c) A coupon bond of £100 pays annual coupons of 5% at the end of years 1 and 2 (when it also matures). If it trades today at £93.01, what is its yield to maturity?
1. You are financial advisor for a friend who addresses the following issues: a) A company issues £10m face value of five-year zero-coupon bonds when the interest rate is 6%. What is the initial price of the bond? b) A coupon bond of £100 pays annual coupons of 5% at the end of years 1, 2 and 3 (when it also matures). If the discount rate is 8%, what is its price today? c) A coupon bond of £100 pays annual coupons of 5% at the end of years 1 and 2 (when it also matures). If it trades today at £93.01, what is its yield to maturity?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:1. You are financial advisor for a friend who addresses the following issues:
a) A company issues £10m face value of five-year zero-coupon bonds when the
interest rate is 6%. What is the initial price of the bond?
b) A coupon bond of £100 pays annual coupons of 5% at the end of years 1, 2
and 3 (when it also matures). If the discount rate is 8%, what is its price today?
c) A coupon bond of £100 pays annual coupons of 5% at the end of years 1 and 2
(when it also matures). If it trades today at £93.01, what is its yield to maturity?
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