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Bond Prices versus Yields
A. What is the relationship between the price of a bond and its YTM?
B. Explain why some bonds sell at a premium over par value while other bonds sell at a discount. What do you know about the relationship between the coupon rate and the YTM for premium bonds? What about for discount bonds? For bonds selling at par value?
C. What is the relationship between the current yield and YTM for premium bonds? For discount bonds? For bonds selling at par value?
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The three-month interest rate is 3% for the dollar and is 5% for the British pound. The current spot rate is $1.5556/xi. A dealer sells xi 20,000,000 forward for dollars for delivery in three months at $1.5479/xi.. Analyze risk that the dealer is fac..
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Assume that you are considering the purchase of a 15-year bond with an annual coupon rate of 9.5%. The bond has face value of $1,000 and makes semi-annual interest payments. If you require an 11.0% nominal yield to maturity on this investment, what i..
A company pays salary of $75,000 to an employee. Both employer and employee contributes $7,500 each in qualified retirement plan for the employee. Marginal tax rates for employer and employee are 28% and 15% respectively. What is the total tax saving..
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