25 Jun WHAT WOULD BE THE EXPECTED PRICE OF EACH BOND ONE YEAR FROM NOW IF INTEREST RATES WERE 8 PERCENT?
Kavita De Falla is an individual with low risk tolerance who has just inherited $100000. She has no Show more Kavita De Falla is an individual with low risk tolerance who has just inherited $100000. She has no immediate needs for the funds but would like to supplement her current income. Thus De Falla is considering investing these funds in debt instruments since the interest and repayment of principal are legal obligations of the issuer. While she realizes that the borrower could default on the payments she believes this is unlikely especially if she limits her choices to triple- or double-A-rated bonds. De Falla does realize that she could earn more interest by purchasing lower-rated bonds but is not certain that she is capable of bearing the risk. Besides the risk and expected reutrn De Falla decides that tax considerations must also play a role in this investment decision. She is currently in the 28 percent federal income tax bracket and pays state income tax of 5 percent. De Falla quickly learned that there are many bonds among which to choose. Bond Interest Per $1000 bond Coupon A $50 5% B $100 10% C $100 10% D $80 8% Bond Term Price Yield To Maturity A 1 year $981 7% B 5 years $1035 9.1% C 10 years $1000 10.0% D 20 years $742 11.3% Curently the interest rate of long term debt ranges from 9 to 11.5 percent. Help her answer the following questions: 1. a) What would be the expected price of each bond one year from now if interest rates were 8 percent? b) What would be the expected price two years from now if interest rates initially fall but subsequently rise to 12 percent at the end of the second year? 2. If interest rates were expected to fall and not rise back to 12 percent which alternative is best? 3. If interest rates were expected to decline initially and then rise which alternative should be selected? 4. If bond A were selected what would happen after a year elapses? What decision must then be made? Show less
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.
About Writedemy
We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.
How It Works
To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Are there Discounts?
All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.