9.
a. Several years ago, Castles in the Sand, Inc., issued bonds at face value at a yield to maturity of 7%. Now, with 8 years left until the maturity of the bonds, the company has run into hard times, and the yield to maturity on the bonds has increased to 15%. What has happened to the price of the bond? Coupons are paid semi-annually. (Round your answer to the nearest cent.)
b. Suppose that investors believe that Castles can make good on the promised coupon payments, but that the company will go bankrupt when the bond matures and the principal comes due. The expectation is that investors will receive only 80% of face value at maturity. If they buy the bond today, what yield to maturity do they expect to receive? (Round your answer to 2 decimal places.)
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- 2a. Last year a firm issued 20-year, 8% annual coupon bonds at a par value of $1,000. Suppose that one year later the going market interest rate drops to 6%. What is the new price of the bonds assuming that they now have 19 years to maturity? 2b. Suppose that one year after issue, the going market interest rate is 10% (rather than 6%). What would the price have been?arrow_forwardYour company wants to pay off some long-term debt, so you decide to buy back some conventional 10-year bonds that you issued 8 years ago. The par value of the bonds is $1200, and the bonds were issued at a 5% coupon rate. Currently, other companies with the same risk profile as your company are offering new 2-year bonds at an interest rate of 8%. Assume that you are at the start of year 9, i.e., the 8th interest payment has been made. What is a fair offer to buy back the bonds? Answer:arrow_forward19arrow_forward
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- 3. An investor enters into a forward contract to sell a bond in 3 months time at $100. After one month, the bond price is $99.06. Suppose the interest rate is 5% continuously compounded at all maturities. a) Assuming no coupons are due on the bond over the next two months, what is now the forward price of the bond? b) What is the marked-to-market value of the investor's short position?arrow_forwardPlease answer question 1 without excel usagearrow_forwardPlease help me with these questions. Please don't use excelarrow_forward
- aa.1arrow_forwardFixed Income Securities4. Today is t = 0. You have just bought a five-year zero-coupon Treasurybond with $100 face value. You paid $80.(a) What is the annually compounded yield to maturity on the bond?(b) Suppose that yields at all maturities decrease to 2% immediately after you havepurchased the bond. Calculate the annualized holding period return if you sellthe bond one year after you have purchased it, at t = 1.(c) What is the annually compounded yield to maturity on the bond at t = 1?arrow_forward#14.arrow_forward
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