B16. (Interest-rate risk) Philadelphia Electric has many bonds trading on the New York Stock Exchange.
Corporate Financial Management (3rd Edition): Emery, Douglas R., Finnerty, John D., & Stowe, John D. (2007)
Individual assignment: Text Problem Set
B16. (Interest-rate risk)
Chapter 5, Problems
a. If the yield to maturity for all three bonds is 8%, what is the fair price of each bond?
b. Suppose that the yield to maturity for all of these bonds changed instantaneously to 7%. What is the fair price of each bond now?
c. Suppose that the yield to maturity for all of these bonds changed instantaneously again, this time to 9%. Now what is the fair price of each bond?
d. Based on the fair prices at the various yields to maturity, is interest-rate risk the same, higher, or lower for longer- versus shorter-maturity bonds?
