You own a two-bond portfolio. Each has a par value of $1,000. Bond A matures in five years, has a coupon rate of 8 percent, and has an annual yield to maturity of 9.20 percent. Bond B matures in fifteen years, has a coupon rate of 8 percent and has an annual yield to maturity of 9.20 percent. Both bonds pay interest semi-annually. What is the value of your portfolio? what happens to the value of your portfolio if each yield to maturity rises by one percentage point? Rather than own a five-year bond and a fifteen-year bond, suppose you sell both of them and invest in two ten-year bonds. Each has a coupon rate of 8 percent (semi-annual coupons) and has a yield to maturity of 9.20 percent. What is the value of your portfolio? What happens to the value of your portfolio if the yield to maturity on the bonds rises by one percentage point? Based upon your answers to (a) and (b), evaluate the price changes between the two portfolios. Were the price changes the same? Why or why not?

Posted Date: 10/27/2012 12:26:38 AM | Location : United States

Ask an Expert

Related Discussions:- final project, Assignment Help, Ask Question on final project, Get Answer, Expert's Help, final project Discussions

Write discussion on final project
Your posts are moderated

Write your message here..

Related Questions

Assignment, Internal Rate of Return Internal Rate of Return

Working Capital movement, If revenue=£92 million, purchase costs=£48 millio... If revenue=£92 million, purchase costs=£48 million and operating costs=£41 million, and if working capital days are 39 for inventory and 110 for accounts payable, what is the worki

Litigation support and dispute resolution, Litigation Support/Dispute Resol... Litigation Support/Dispute Resolution - A service that CPAs every so often provide to attorneys -for example expert testimony about the value of a business or other asset, for

What do you understand by accumulated funds, QUESTION 1: Part A Ma... QUESTION 1: Part A Malcolm was in business as an import merchant and the following balances were extracted from his books on 31st December 2003: Purchases

Reserve requirement , 2(i). If all depositors tried to convert their deposi... 2(i). If all depositors tried to convert their deposits into cash at once, they would find that there are not sufficient reserves in the system to permit all of them to do this at

Accumulated Depreciation, The office building was bought in January 1, 2011... The office building was bought in January 1, 2011 and was originally planned to be used for 40 years and had no salvage value. It is depreciated on a straight line basis. Now in

Departmental accounts, please help me on the current lay out of the departm... please help me on the current lay out of the departmental accounts

Profit for the period-notes to the accounts, Profit for the period The pr... Profit for the period The profit for the period has been arrived at after charging the following expenses: Normal 0 false false false EN-US X-NONE

Process of abc analysis - inventory control, Process of ABC Analysis •... Process of ABC Analysis • Classification:   On the origin of expected use, the items of inventory are categorized according to their categories and per unit Price of each item

Find out the constant nominal interest rate, You decide to invest 1000 in a... You decide to invest 1000 in a 5-year Treasury Inflation protected bond that each year offers a return of -1.5% plus the rate of inflation. You assume 1-year inflation rates over t