Value a risky corporate bond, assuming that the risk-free interest rate is 4 per cent per period, where a period is defined as six months. The corporate bond has a face value of €100 payable two periods from now, and pays a 5 per cent coupon per period: that is, interest payments of €5 at the end of both the first period and the second period. The corporate bond is a derivative of the assets of the issuing firm. Assume that the assets generate sufficient cash to pay off the promised coupon one period from now. In particular, the corporation has set aside a reserve fund of €5/1.04 per bond to pay off the promised coupon one period from now. Two periods from now, there are three possible states. In one of those states, the assets of the firm are not worth much and the firm defaults, unable to generate a sufficient amount of cash. Only €50 of the €105 promised payment is made on the bond in this state. The exhibit below describes the value of the firm's assets per bond (less the amount in the reserve fund maintained for the intermediate coupon) and the cash pay-offs of the bond. The non-reserved assets of the firm are currently worth €100 per bond. At the U and D nodes the reserve fund has been depleted, and the remaining assets of the firm per bond are worth €120 and €90, respectively, while they are worth €300, €110 and €50, respectively, in the UU, UD and DD states two periods from now. Paths for (a) the Value of the Firm's Assets Per Bond (Above the Node); and (b) Cash Pay-offs of a Risky Bond (Below the Node); in a Two-Period Binomial Tree Diagram €100 €120 U €5 €90 D €5 €300 UU €105 €110 UD €105 €50 DD €50

Assume that the real, risk-free rate of interest is expected to be constant over time at 3 percent, and that the annual yield on a 6-year corporate bond is 8.00 percent, while the annual yield on a 10-year corporate bond is 7.75 percent: you may assume that the default risk and liquidity premium are the same for both bonds. Also assume that the maturity risk premium for all securities can be estimated as MRP, (0.1%) *(t-1), where t is the number of periods until maturity. Finally assume that inflation is expected to be constant at 3 percent for Years 1-6, and then constant at some rate for Years 7-10 (4 years). Given this information, determine what the market must anticipate the average annual rate of inflation will be for Years 7-10. 2.583% O 1979% 2.281% 1.375 % O 1.677 % 4

A BBB-rated corporate bond has a yield to maturity of 7.4%. A U.S. Treasury security has a yield to maturity of 5.7%. These yields are quoted as APRs with semiannual compounding. Both bonds pay semi-annual coupons at a rate of 6.1% and have five years to maturity.     a. What is the price (expressed as a percentage of the face value) of the Treasury bond? b. What is the price (expressed as a percentage of the face value) of the BBB-rated corporate bond? c. What is the credit spread on the BBB bonds? *round to three decimal places*

Bond X is a premium bond making semiannual payments. The bond has a coupon rate of 8.2 percent, a YTM of 6.2 percent, and has 15 years to maturity. Bond Y is a discount bond making semiannual payments. This bond has a coupon rate of 6.2 percent, a YTM of 8.2 percent, and also has 15 years to maturity. Assume the interest rates remain unchanged and both bonds have a par value of $1,000. a. What are the prices of these bonds today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What do you expect the prices of these bonds to be in one year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. What do you expect the prices of these bonds to be in three years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) d. What do you expect the prices of these bonds to be in eight years? (Do not round intermediate calculations and round your answers to 2…

A 15-year bond with a face value of $1,000 currently sells for $850. Which of the following statements is most correct? The bond's yield to maturity is greater than its coupon rate. If the yield to maturity stays constant until the bond matures, the bond's price will remain at $850. The bond's current yield is equal to the bond's coupon rate. The bond's yield to maturity is the same as capital gain yield. All of the statements above are correct. None of the above are correct

A BBB-rated corporate bond has a yield to maturity of 13.2%. A U.S. Treasury security has a yield to maturity of 11.8%. These yields are quoted as APRS with semiannual compounding. Both bonds pay semi-annual coupons at a rate of 12.7% and have 5 years to maturity. a. What is the price (expressed as a percentage of the face value) of the Treasury bond? b. What is the price (expressed as a percentage of the face value) of the BBB-rated corporate bond? c. What is the credit spread on the BBB bonds?

You are considering an investment in 20-year bonds issued by Moore Corporation. The bonds have no special covenants. The Wall Street Journal reports that 1-year T - bills are currently earning 0.50 percent. Your broker has determined the following information about economic activity and Moore Corporation bonds:Real risk-free rateDefault risk premiumLiquidity 0.41% = 1.05 % = 0.90% = 0.75% risk premiumMaturity risk premium = a. What is the inflation premium?b. What is the fair interest rate on Moore Corporation 20-year bonds?

Assume that you own a $ 1 million par value corporate bond that pays 7% in coupon interest (3.5% semiannual), has 4 years remaining to maturity, and is immediately callable at par. Its current market yield is 7% and it is priced at par. If rates on comparable securities fall by more than 40 basis points (0.2% semiannually), the bond will be called (a) Calculate the bonds price if the market rate increases by 50 basis points (0.25% semiannually) using the present value formula from (b) Calculate the bonds effective duration assuming a 50 basis point increase or decrease in market rates

A firm considers to invest in two zero-coupon bonds (A and B) in order to cover for a selection of its future liabilities. These zero-coupon bonds will be redeemed in 7 years' and in 20 years' time, respectively. The given selection of its liabilities consist of £11 million due in 11 years' time and £14 million due in 16 years' time. Find the value of bond B at a rate of interest of 5% per annum effective such that the first two conditions for Redington's theory of immunisation are satisfied

1.   What is the yield to maturity on the following bonds; all have a maturity of 10 years, a face value of 2000, and a coupon rate of 4 percent (paid semiannually). The bond's current prices are:   a. $1,180   b. $ 2,400   c. Explain the relationship between yield to maturity and bond prices.