Suppose you are the proud owner of a $100,000 face-value Zimbabwe government bond having five years remaining to maturity with a fixed coupon interest rate of 5%. (a) Assume the bond pays semi-annual interest and that it is currently priced with a 40% yield-to-maturity. What is its current selling price? (b) The Zimbabwe government has proposed the following: in exchange for the bond you will receive an upfront cash payment equal to 15% of the original bond’s face value along with a new five-year bond paying a 2.5% coupon interest rate (paid semiannually) but with the face value reduced by 50 percent. Suppose markets indicate that these new bonds will be priced with a 20% yield-to-maturity. What would be the change in the present value of your investment if you participate in the exchange?

Suppose you are the proud owner of a $100,000 face-value Zimbabwe government bond having five years remaining to maturity with a fixed coupon interest rate of 5%. (a) Assume the bond pays semi-annual interest and that it is currently priced with a 40% yield-to-maturity. What is its current selling price? (b) The Zimbabwe government has proposed the following: in exchange for the bond you will receive an upfront cash payment equal to 15% of the original bond’s face value along with a new five-year bond paying a 2.5% coupon interest rate (paid semiannually) but with the face value reduced by 50 percent. Suppose markets indicate that these new bonds will be priced with a 20% yield-to-maturity. What would be the change in the present value of your investment if you participate in the exchange?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 9P

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