Search for question
Question

3

5

Mc

Grow

Problem 19-1

Two 15-year maturity mortgage-backed bonds are issued. The first bond has a par value of $10,000 and promises to pay a 11.0 percent

annual coupon, while the second is a zero coupon bond that promises to pay $10,000 (par) after 15 years, with interest accruing at 10.5

percent. At issue, bond market investors require a 12.5 percent interest rate on both bonds.

Required:

a. What is the initial price on each bond?

b. Now assume that both bonds promise interest at 11.0 percent, compounded semiannually. What will be the initial price for each

bond?

c. If market interest rates fall to 100 percent at the end of the fifth year, what will be the value of each bond, assuming annual

payments as in (a) (state both as a percentage of par value and actual dollar value)?

Answer is complete but not entirely correct.

TOSHIBA

Check my work mode: This shows what is correct or incorrect for the work you have completed so far. It does n

Complete this question by entering your answers in the tabs below.

Required A

Required B Required C

Now assume that both bonds promise interest at 11 percent, compounded semiannually. What will be the initial price for each

bond? (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Initial price

Type here to search

vo.

JD VOID

voin

Bond 1

S 8,682 04

DISCORD

$

Bond 2

774.27

< Required A

HI

Required C >

21

< Prev

3 of 4

Next >

Fig: 1