File Preview Problem 2: Interest rate and bond valuation (30 points) XYZ is a firm in the construction sector with an AAA credit rating. 2 years ago, XYZ issued a 15-year bond. The bond makes quarterly payments, has a coupon rate of 6.45% and a principal of $1,000,000. A) Find the bond's price if the YTM is 6% Assume that right after you finished valuing the bond in part A), market conditions have changed and now the bond is priced at 105% of par value. B) Find the bond's new YTM C) Two years ago, XYZ also issued a 30-year bond with the same coupon frequency, coupon rate, and principal. How do you think the change in market conditions would affect the price of this new bond compared to the 15-year bond? Explain. D) What would likely happen to the price of XYZ bonds if their credit rating were demoted to BBB? Explain
File Preview Problem 2: Interest rate and bond valuation (30 points) XYZ is a firm in the construction sector with an AAA credit rating. 2 years ago, XYZ issued a 15-year bond. The bond makes quarterly payments, has a coupon rate of 6.45% and a principal of $1,000,000. A) Find the bond's price if the YTM is 6% Assume that right after you finished valuing the bond in part A), market conditions have changed and now the bond is priced at 105% of par value. B) Find the bond's new YTM C) Two years ago, XYZ also issued a 30-year bond with the same coupon frequency, coupon rate, and principal. How do you think the change in market conditions would affect the price of this new bond compared to the 15-year bond? Explain. D) What would likely happen to the price of XYZ bonds if their credit rating were demoted to BBB? Explain
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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Problem 2: Interest rate and bond valuation (30 points)
XYZ is a firm in the construction sector with an AAA credit rating. 2 years ago, XYZ
issued a 15-year bond. The bond makes quarterly payments, has a coupon rate of
6.45% and a principal of $1,000,000.
A) Find the bond's price if the YTM is 6%
Assume that right after you finished valuing the bond in part A), market conditions
have changed and now the bond is priced at 105% of par value.
B) Find the bond's new YTM
C) Two years ago, XYZ also issued a 30-year bond with the same coupon frequency,
coupon rate, and principal. How do you think the change in market conditions
would affect the price of this new bond compared to the 15-year bond? Explain.
D) What would likely happen to the price of XYZ bonds if their credit rating were
demoted to BBB? Explain
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