This paper circulates around the core theme of Assume Microsoft issued 15-year bonds one year ago at a coupon rate of 6.1% with semiannual together with its essential aspects. It has been reviewed and purchased by the majority of students thus, this paper is rated 4.8 out of 5 points by the students. In addition to this, the price of this paper commences from £ 99. To get this paper written from the scratch, order this assignment now. 100% confidential, 100% plagiarism-free.
Assume Microsoft issued 15-year bonds one year ago at a coupon rate of 6.1% with semiannual… 1 answer below » Assume Microsoft issued 15-year bonds one year ago at a coupon rate of 6.1% with semiannual payments. If the required rate in the market (the YTM) is 5.3%, what is the price that the bond should be sold for? The coupon of a bond is the interest rate paid on it. We learned last week about interest-only loans and I mentioned that bonds are actually exactly that. In that sense, a bond pays the bond holder (the buyer of the bond) an interest payment every period (usually twice a year) for borrowing its money. This interest is called coupon. The calculation of the coupon rate of a bond is simple. View complete question » Assume Microsoft issued 15-year bonds one year ago at a coupon rate of 6.1% with semiannual payments. If the required rate in the market (the YTM) is 5.3%, what is the price that the bond should be sold for? The coupon of a bond is the interest rate paid on it. We learned last week about interest-only loans and I mentioned that bonds are actually exactly that. In that sense, a bond pays the bond holder (the buyer of the bond) an interest payment every period (usually twice a year) for borrowing its money. This interest is called coupon. The calculation of the coupon rate of a bond is simple. For instance for a bond that has a principal of $1,000 and a coupon of $100 per year, the coupon rate is 10%. This is equal to borrowing $1,000 at 10% interest per year. Simple. Now, the YTM. This is the rate required in the market for a bond. So, bonds, as many assets, change value over time. For instance, you can buy a bond for $1,000 today, but if you try to resell the bond, you may only get $800 for it. The rationale is simple. If a bond offers you as an investor an interest (coupon) of 10% and another bond with the same risk offers 12%, which one would you buy? You would buy the one with the highest return – 12%. Therefore, people selling bonds with a 10% interest rate need to lower the price of the bonds to make them more attractive to the market. Let’s consider an example. Assume Microsoft issued 15-year bonds one year ago at a coupon rate of 6.1% with semiannual payments. If the required rate in the market (the YTM) is 5.3%, what is the price that the bond should be sold for? Remember that the 5.3% is the return that other investors in the market will require for a bond with the same risk. Document Preview: The coupon of a bond is the interest rate paid on it. We learned last week about interest-only loans and I mentioned that bonds are actually exactly that. In that sense, a bond pays the bond holder (the buyer of the bond) an interest payment every period (usually twice a year) for borrowing its money. This interest is called coupon. The calculation of the coupon rate of a bond is simple. For instance for a bond that has a principal of $1,000 and a coupon of $100 per year, the coupon rate is 10%. This is equal to borrowing $1,000 at 10% interest per year. Simple. Now, the YTM. This is the rate required in the market for a bond. So, bonds, as many assets, change value over time. For instance, you can buy a bond for $1,000 today, but if you try to resell the bond, you may only get $800 for it. The rationale is simple. If a bond offers you as an investor an interest (coupon) of 10% and another bond with the same risk offers 12%, which one would you buy? You would buy the one with the highest return – 12%. Therefore, people selling bonds with a 10% interest rate need to lower the price of the bonds to make them more attractive to the market. Let’s consider an example. Assume Microsoft issued 15-year bonds one year ago at a coupon rate of 6.1% with semiannual payments. If the required rate in the market (the YTM) is 5.3%, what is the price that the bond should be sold for? Remember that the 5.3% is the return that other investors in the market will require for a bond with the same risk. Attachment…
