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UNIVERSITY OF ROCHESTER SIMON BUSINESS SCHOOL 3. Bonds. a. dotBuzzz has a 5-year $15 mln zero-coupon bond with a market value of $12 mln, maturing in...
3. Bonds.
a. dotBuzzz has a 5-year $15 mln zero-coupon bond with a market value of $12 mln, maturing in 3 years. If dotBuzzz is expected to repay $0.95 for every $1 of face value, what is the expected YTM?
b. dotBuzzz has issued a 10-year, $10mln, 2.5% semi-annual coupon bond (coupons of 1.25% every 6 months) priced at $8.5mln. Using Excel, compute semiannual YTM. How much should the bond be worth today if semi-annual YTM is 1% lower than you estimated [assume full repayment]? How does YTM change from the initial calculation if dotBuzzz is expected to repay $0.95 for every $1?
