A corporate bond matures in 2 years, pays semi-annual coupons, has a coupon rate of 5.8% and a AA credit rating. A 2-year Treasury bond that makes payments onthe same days as the corporate bond has a yield to maturity of 2.2% (APR, semiannual compounding). The credit spread on AA bonds is 89 basis points (0.89%).What should be the price of the corporate bond? Assume a $1,000 face value.Assuming a $1,000 face value, the price of the bond is $(Round to the nearest cent.)

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Answered: A corporate bond matures in 2 years,…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A corporate bond with annual coupons has a face value of $1,000, 4 years to maturity and a coupon rate of 8%. The market interest rate for similar bonds is 0.095. What is the bond's duration?
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A bond has following characteristics: it was issued on 14.06.2018 and has 10 years to maturity. Coupon is paid semi-annually and carries interest rate of 3,2%. Market interest rate is currently 2,9% for similar issues. Investor purchased the bond on 19.11.2021. a. Calculate MacDuration b. Calculate ModDuration c. When market interest rates increase by 50 basis points, calculate price effect using results obtained in question (b)
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A BBB-rated corporate bond has a yield to maturity of 9.3%. AU.S. Treasury security has a yield to maturity of 7.4%. These yields are quoted as APRS with semiannual compounding. Both bonds pay semi-annual coupons at a rate of 8.0% 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 in the price (expressed as a percentago of the face value) of the BBB-rated corporato bond? e. What is the credit spread on the BBB bonds? Com a. What is the price (expressed as a percentage of the face value) of the Treasury bond? The price of the Treasury bond as a percentage of face value is%. (Round to three decimal places.)
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