a) Assume you find a BAS 8.5s15 bond. It is a standard bond. What would you expect the price of this bond to be, if it matures on this date, during the appropriate year, and instruments with similar risk and maturity are yielding 8.16 percent per year? (Assume today, the year is 2006.) [Hint: You will need the bond equation and you will need to properly define the period, etc.]
b) Is this bond selling at a discount, at a premium or at par?
c) Please calculate its current yield.
2.) Assume the XYZ 7.0 11 bond is standard, matures on this date during the appropriate year, carries a bond rating of AA and is selling today for $1,042.55. Please calculate its YTM. (Assume today, the year is 2006.) [Hint: You may want to try “trial and error.”]
3.) Assume there is an identical bond to the one described in question 2, except that it carries a BBB bond rating. What would you assume about its price? About its YTM? Please explain.
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