Ask Question, Ask an Expert

+61-413 786 465

info@mywordsolution.com

Ask Microeconomics Expert

Economics


Home >> Microeconomics

Two bonds have the following terms

BondA BondB
Principal $1000 $1000
Coupon 8% 7.6%
Maturity 10 years 10 years

Bond B has an additional feature: It may be redeemed at par after 5 years. both bonds were initially sold for their face amounts.

a) If interest rates fall to 7%, what will be the price of each bond
b) If interest rate rise to 9%, what will be the decline in the price pf each bond from its initial price
c) Given your answer to problem a and b, what is the trade off implied by the put option in bond B
d) Bond B requires the investor to forge $4 a year.If the interest rates are 8%, what is the present value of this forgone interest? If the bond had lacked the put feature but had a coupon of 7.6 percent and a term to maturity of ten years, it would sell for $973.16 when interest rates were 8 percent. What, then, is the implied cost of the put option

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M939397

Have any Question?


Related Questions in Microeconomics

Question in the early 1980s the us rate of inflation fell

Question: In the early 1980s, the US rate of inflation fell from 13% to 4%, government regulation decreased and deregulation increased, and the Reagan Administration passed significant tax incentives to boost saving and ...

Question in a linear demand equation what economic

Question: In a linear demand equation, what economic information is conveyed by the intercept on the price axis? Similarly, what economic information is conveyed by the intercept on the price axis in a linear supply equa ...

Question - suppose that a consumer cannot vary hours of

Question - Suppose that a consumer cannot vary hours of work as he or she chooses. In particular, he or she must choose between working q hours and not working at all, where q >0. Suppose that dividend income is zero, an ...

Question imagine you were hired to be an economic advisor

Question: Imagine you were hired to be an economic advisor to President Trump. Recently Mr. Trump announced that he will be able to boost GDP growth to 4%. Using what you have learned from the Solow Growth Model, explain ...

Question debeers the dominant firm in diamond mining and

Question: DeBeers, the dominant firm in diamond mining and wholesale marketing, has until recently been unintegrated into any downstream activities. In the past few years, however, it has opened a handful of its own reta ...

Question the next time the us economy returns to full

Question: The next time the US economy returns to full employment, what factors will determine how much longer it will take for the next recession to develop? (Note: there is no ‘‘right'' answer to this question; the ide ...

Question by 1993 nations in the european union eu had

Question: By 1993, nations in the European Union (EU) had eliminated all barriers to the flow of goods, services, labor, and capital across their borders. Even such things as consumer protection laws and the types of plu ...

Question - for the following questions write whether the

Question - For the following questions write whether the statements are true or false and give full justification for your answer. (a) For a given income level, it is not possible to have both good 1 and good 2 as luxury ...

Question suppose you are the manager of a chain of computer

Question: Suppose you are the manager of a chain of computer stores. For obvious reasons you have been closely following developments in the computer industry, you have just learned that the government has passed a two-p ...

Question consider a firm that makes plastic cups it

Question: Consider a firm that makes plastic cups. It produces the cups using two inputs: metal molds and plastic pellets that are melted and injected into the molds. The firm only needs one metal mold to produce any num ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As

Follow Us

© Copyright 2013-14 mywordsolution.com All rights reserved