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    This document contains a weekly assignment for a business finance course. It includes 4 questions related to bond pricing and yields. Question 1 asks about the price volatility of floating rate bonds. Questions 2 asks about calculating maturity risk premiums on Treasury notes. Question 3 asks students to compute the realized rate of return for bond investors who originally purchased bonds that were later called. Question 4 asks about calculating bond prices over time given changes in market interest rates.

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    BF

    Uploaded by

    Ahmed Hassaan
    157 views1 page
    This document contains a weekly assignment for a business finance course. It includes 4 questions related to bond pricing and yields. Question 1 asks about the price volatility of floating rate bonds. Questions 2 asks about calculating maturity risk premiums on Treasury notes. Question 3 asks students to compute the realized rate of return for bond investors who originally purchased bonds that were later called. Question 4 asks about calculating bond prices over time given changes in market interest rates.

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    This document contains a weekly assignment for a business finance course. It includes 4 questions related to bond pricing and yields. Question 1 asks about the price volatility of floating rate bonds. Questions 2 asks about calculating maturity risk premiums on Treasury notes. Question 3 asks students to compute the realized rate of return for bond investors who originally purchased bonds that were later called. Question 4 asks about calculating bond prices over time given changes in market interest rates.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    157 views1 page

    BF

    Uploaded by

    Ahmed Hassaan
    This document contains a weekly assignment for a business finance course. It includes 4 questions related to bond pricing and yields. Question 1 asks about the price volatility of floating rate bonds. Questions 2 asks about calculating maturity risk premiums on Treasury notes. Question 3 asks students to compute the realized rate of return for bond investors who originally purchased bonds that were later called. Question 4 asks about calculating bond prices over time given changes in market interest rates.

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    Business Finance-1 (FIN506)

    Weekly Assignment # 6

    Instructor: Sana Tauseef


    Semester: Fall 2019
    Due Date: October 6, 11 p.m.

    1. Since the floating rate bond's coupon adjusts based on market conditions, its price
    tends to have less volatility or price fluctuations. True or False? Explain. (3-4 lines)

    2. Assume that the real risk-free rate, r*, is 3% and that inflation is expected to be 8%
    in Year 1, 5% in Year 2, and 4% thereafter. Assume also that all Treasury securities
    are highly liquid and free of default risk. If 2-year and 5-year Treasury notes both
    yield 10%, what is the difference in the maturity risk premiums (MRPs) on the two
    notes; that is, what is MRP5 minus MRP2?

    3. Seven years ago, Goodwynn & Wolf Incorporated sold a 20-year bond issue with
    a 14% annual coupon rate and a 9% call premium. Today, G&W called the bonds.
    The bonds originally were sold at their face value of $1,000. Compute the realized
    rate of return for investors who purchased the bonds when they were issued and
    who surrender them today in exchange for the call price.

    4. Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a


    $1,000 par value, a 10% coupon rate, and semiannual interest payments. a. Two
    years after the bonds were issued, the going rate of interest on bonds such as
    these fell to 6%. At what price would the bonds sell?
    Suppose that, 2 years after the initial offering, the going interest rate had risen to
    12%. At what price would the bonds sell?
    Suppose, as in part a, that interest rates fell to 6% 2 years after the issue date.
    Suppose further that the interest rate remained at 6% for the next 8 years. What
    would happen to the price of the bonds over time?

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