A high-yield bond has the following terms:
      Principal amount         $1,000
      Annual interest paid       $100
      Maturity                     10 years

a. What is the bond's price if comparable debt yields 12 percent?

b. What would be the price if comparable debt yields 12 percent and the bond matures after five years?

c. What are the current yields and yields to maturity in a and b?

d. What would be the bond's price in a and b if interest rates declined to 9 percent?

e. What are the current yield and yield to maturity in d?

f. What two generalizations may be drawn from the above price changes?

Question

A high-yield bond has the following terms: 
      Principal amount         $1,000 
      Annual interest paid       $100 
      Maturity                     10 years 
 
a. What is the bond's price if comparable debt yields 12 percent? 
 
b. What would be the price if comparable debt yields 12 percent and the bond matures after five years? 
 
c. What are the current yields and yields to maturity in a and b? 
 
d. What would be the bond's price in a and b if interest rates declined to 9 percent? 
 
e. What are the current yield and yield to maturity in d? 
 
f. What two generalizations may be drawn from the above price changes?

Quizplus · Accepted Answer

The Answer of A high-yield bond has the following terms: 
      Principal amount         $1,000 
      Annual interest paid       $100 
      Maturity                     10 years 
 
a. What is the bond's price if comparable debt yields 12 percent? 
 
b. What would be the price if comparable debt yields 12 percent and the bond matures after five years? 
 
c. What are the current yields and yields to maturity in a and b? 
 
d. What would be the bond's price in a and b if interest rates declined to 9 percent? 
 
e. What are the current yield and yield to maturity in d? 
 
f. What two generalizations may be drawn from the above price changes?

A High-Yield Bond Has the Following Terms