What is the fair price of each bond

Assignment Help Finance Basics
Reference no: EM13298127

BP oil has many bonds trading on the New York Stock Exchange. Suppose BP's bonds have identical coupon rates of 5.7% but that one issue matures in 1 year, one in 6 years, and the third in 14 years. Assume that a coupon payment was made yesterday.

a. if the yield to maturity for all three bonds is 8%, what is the fair price of each bond?

b. suppose that the yield to maturity for all of these bonds changed instantaneously to 7%. What is the fair price of each bond now?

c. suppose that the yield to maturity for all of these bonds changed instantaneously again, this time to 11%. Now what is the fair price of each bond?

d. based on the fair prices at the various yields to maturity, is interest-rate risk the same, higher, or lower for longer versus shorter maturity bonds? Please show me how to calculate the answers.

Reference no: EM13298127

Questions Cloud

What value would frank estimate for the firm : Kent, a colleague of Frank at the same firm is less optimistic. Brett thinks the ABC company will begin paying a divident in 4 yrs and it will be $2.50 and it will grow at a rate of 3% annually. John and James agree that the required return for AB..
What amount of water use is exceeded with the probability : Suppose the summer daily demand for water use in Phoenix is normally distributed with a mean of 310 million gallons/day and a standard deviation of 45 million gallons/day. Also suppose the city has reservoirs whose combined storage is 350 million ..
How long does maria measure your ship to be : You and Maria each own identical spaceships. As you fly past Maria, you measure her ship to be 96 m long, How fast is Maria moving relative to you
A preference for qualitative or quantitative research : How could you revise it to be qualitative, and vice versa? Have you a preference for qualitative or quantitative research? Why?
What is the fair price of each bond : Based on the fair prices at the various yields to maturity, is interest-rate risk the same, higher, or lower for longer versus shorter maturity bonds? Please show me how to alculate the answers.
Estimate the total energy of the system : A 58.6g mass connected to a spring with a force constant of 31.2 N/m oscillates on a horizontal, frictionless surface with an amplitude of 3.70 cm. Calculate the total energy of the system
A certain metal oxide has the formula mo where m denotes : A certain metal oxide has the formula MO where M denotes the metal. A 36.46g sample of the compound is strongly heated in an atmosphere of hydrogen to remove oxygen as water molecules.
What distribution can be reasonably assumed for sample mean : On a particular highway, a permanent speed measuring device at one particular location has determined, over many months of observations, that the mean and standard deviation of vehicle speeds at that point are 52 miles per hour and 4 miles per hou..
What is an indigenous religion : What is an indigenous religion? What are some of the obstacles to understanding these religions

Reviews

Write a Review

Finance Basics Questions & Answers

  Business risk versus financial risk

This is a critical planning and concepts review question. I am trying to figure out from the Essentials of corporate finance by Ross Westerfield Jordan 6e Book for my finance class.

  What must the expected return on this stock be

A stock has a beta of 1.7, the expected return on the market is 11 percent, and the risk-free rate is 4.4 percent. What must the expected return on this stock be? HINT: Use the Security Market Line.

  Why results are different at the different interest rates

How much would $1,000,000 due in 100 years be worth today if the discount rate was 5%? if the discount rate was 10%. Discuss how and why the results are different at the different interest rates.

  Finding out the annuity plan

Find out whether or not the proceeds of home will offer enough to meet the need desired & to make an ordinary annuity plan to build the fund to cover any shortfall in funds.

  Estimate the yield to maturity on this bond

A 5-year corporate bond with a 6.8% coupon rate is trading at $952.63. Assuming semi-annual coupon payments: (i) estimate the yield to maturity on this bond

  What is the wacc of startlight

What is the WACC of Startlight if it would like to finance a new investment project?

  What is the value of a put option written on the stock

What is the value of a put option written on the stock with the same strike price and expiration date as the call option?

  Discuss why financial institutions are heavily regulated

After the training session on monetary policy and its ability to influence the money supply, you determine focus on the other key role of Fed, which is regulating the nation's banks.

  Prepare a bond discount amortization schedule

Travis Corporation sold $2,000,000 9% 20 year bonds on Jan 1, 2006. The bonds were dated Jan. 1, 2006 and pay interest on Jan 1 and July 1. Travis Corporation uses the straight line method to amortize bond premium or discount.

  Determine methods used to record revenues and expenses

Suppose you decided that owning a coffee shop would be perfect. Rather than start from scratch, however, you & your partners decide to look at 2-existing establishments,

  Hedging-currency derivatives

The Superbowl Champs, New York Giants plans to play in United Kingdom next year. All expenses will be paid by British government and the Giants will receive check for $1million pounds. The team anticipates that the pound will depreciate substantia..

  What is the external financing needed

Net working capital and fixed assets vary directly with sales. Sales are projected to increase by 8 percent. What is the external financing needed? Answer

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd