Homework Solutions  
» Home
  

See All Homework
Questions here

Question Description

 
Posted by: Homeworkhelp
Price Quoted by Student: $10
Posted On: 2010-12-10 12:12:42
 
Question

4. (Interest-rate risk) The New York Stock Exchange trades many Oregon Timber bonds.   With identical coupon rates of 8.075%, Oregon Timber has one issue that matures in 1 year, one in 7 years, and the third in 15 years. A coupon payment was made yesterday. (Set up a spreadsheet or a table to calculate these in an easier manner. Each question a-c below has a 1, 7 and 15 year answer.)

 

a. If the yield to maturity for all three bonds is 8.25%, what is the fair price of each bond?

 

b. Suppose that the yield to maturity for all of these bonds changed instantaneously to 7.5%.  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 9.95%. Now what is the fair price of each bond?

 

d. Given the fair prices at the various yields to maturity, can you assume interest-rate risk the same, higher, or lower for longer- versus shorter-maturity bonds?

Solutions
SOLUTION Assumed that the coupon payments are mad
Price $10
Attachment 1: The New York Stock Exchange trades.xls
Solution Posted By: Homeworkhelp    Posted on: 10-12-2010