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a.nicole a.nicole
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2 years ago
Assume that the Microsoft bonds have a face value of $1,000, 5-years to maturity and pay annual coupons of $100. The next coupon is due in one year. The yield on equivalently risky corporate bonds is currently 5%. Assume the yield stays at 5% over the life of the bond. Determine the price of the bond today and after each of the first four coupon payments. Plot those prices on a graph with price on the y-axis and time on the x-axis. (The x-axis starts at time 0 and ends on the date of the fourth coupon.) What do you note about the time path (slope of the line) of the bond price?

▸ It is upward sloping.

▸ It is downward sloping.

▸ It is a horizontal line.
Textbook 
Corporate Finance Online

Corporate Finance Online


Edition: 2nd
Authors:
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