A 5-year bond that pays interest semiannually has a 7% coupon and an 8% quoted yield to maturity. Annual interest rates increase 50 basis points. W is the predicted change in the bond price after the interest rate change?

A 5-year bond that pays interest semiannually has a 7% coupon and an 8% quoted yield to maturity. Annual interest rates increase 50 basis points. W is the predicted change in the bond price after the interest rate change?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter5: Bonds, Bond Valuation, And Interest Rates

Section: Chapter Questions

Problem 5MC: What would be the value of the bond described in Part d if, just after it had been issued, the...

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Concept explainers

Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.

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A 5-year bond that pays interest semiannually has a 7% coupon and an 8% quoted yield to maturity. Annual interest rates increase 50 basis points. What
is the predicted change in the bond price after the interest rate change?
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