Abond’s credit rating provides a guide to its price. Assume Aaa bonds yield 3.9% and Baa bonds yield 4.9%. Assume a 10% five-year bond with annual coupons and a face value of $1,000. a. What is the bond’s price if it is rated as Aaa B. What is the bond’s price if it is rated as Baa?
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1. abond’s credit rating provides a guide to its price. Assume Aaa bonds yield 3.9% and Baa bonds yield 4.9%. Assume a 10% five-year bond with annual coupons and a face value of $1,000.
a. What is the bond’s price if it is rated as Aaa
B. What is the bond’s price if it is rated as Baa?
Bond values and interest rates move in opposite directions
2. Which bond has higher interest rate risk: a 2-year bond, or a 20-year bond, assuming they have the coupon rate?
3. A bond has a face value of $2,000, an annual coupon rate of 8 percent, and yields to maturity of 10 percent. The bond was issued on 09/01/2023 and the maturity date is 08/31/2033. What is the bond’s modified duration? If the interest rate decreases by 1%, what is the new bond price (Use modified duration to solve it)
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