What is the bonds yield to maturity
Course:- Financial Management
Reference No.:- EM13942922

Assignment Help
Assignment Help >> Financial Management

Rierson owns a garment factory in Spain and sells designer clothes to US and other European countries. He is trying attract some investments from US that he can use to expand further into the US market. US investors are looking for stable cash flow, which is going to be a challenge given that the fashion industry is changing constantly and he can get stuck with unsold inventory. To allay their fears, Rierson decides to investment some of the capital raised into Italian 10 year Government Bonds. He explains that the return from these bonds will be used to improve his operations. Ignoring currency exposure, consider the following:

a) He decides to invest into ten year 1,000 EURO Government bond with 8% coupon rate and semi-annual coupons. If the bond is currently trading for a price of 957.35 Euros, what is the bond’s yield to maturity? Assume is buys 10,000 of these bonds.


b) Suppose he is told that the yield to maturity has increased to 15% (expressed as an APR with semi-annual compounding). What price is the bond trading for now?

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Financial Management) Materials
North Side Wholesalers has sales of $948,000. The cost of goods sold is equal to 72 percent of sales. The firm has an average inventory of $23,000. How many days on average do
Schultz Industries is considering the purchase of Arras Manufacturing. Arras is currently a supplier for Schultz, and the acquisition would allow Schultz to better control its
A company's $100 par perpetual preferred stock has a dividend rate of 7 percent and a required rate of return of 11 percent. The company's earnings are expected to grow at a c
A firm wishes to maintain an internal growth rate of 7.5 percent and a dividend payout ratio of 25 percent. The current profit margin is 5.9 percent, and the firm uses no exte
The market portfolio has an expected return of 9 percent with a 10 percent volatility. The risk-free rate is 4 percent. A stock has a 20 percent volatility and a correlation c
The possibility that more than one discount rate can cause the net present value of an investment to equal zero is referred to as: A stock has paid dividends of $1.70, $1.85,
Your boss has just given you a $5,000 bonus for the superb work you have been doing. You want to save some of that money for a trip to Bora Bora that you are hoping to take in
Consider the following spot interest rates for maturities of one, two, three, and four years. r1 = 3.8% r2 = 4.2% r3 = 4.9% r4 = 5.7% Assuming a constant real interest rate of