B16. (Interest-rate risk) Philadelphia Electric has many bonds tradingon the New
ID: 2662094 • Letter: B
Question
B16.
(Interest-rate risk) Philadelphia Electric has many bonds tradingon the New York Stock Exchange. Suppose PhilEl’s bonds haveidentical coupon rates of 9.125% but that one issue matures in 1year, one in 7 years, and the third in 15 years. Assume that acoupon payment was made yesterday.
B16.
(Interest-rate risk) Philadelphia Electric has many bonds tradingon the New York Stock Exchange. Suppose PhilEl’s bonds haveidentical coupon rates of 9.125% but that one issue matures in 1year, one in 7 years, and the third in 15 years. Assume that acoupon payment was made yesterday.
- If the yield to maturity for all three bonds is 8%, what is thefair price of each bond?
- Suppose that the yield to maturity for all of these bonds changedinstantaneously to 7%. What is the fair price of each bondnow?
- Suppose that the yield to maturity for all of these bonds changedinstantaneously again, this time to 9%. Now what is the fair priceof each bond?
- Based on the fair prices at the various yields to maturity, isinterest-rate risk the same, higher, or lower for longer-versusshorter-maturity bonds?
Explanation / Answer
x.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.