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Author Question: Consider a Sears 9% bond and a US Treasury 9.25% bond both maturing in ten years. The current yield ... (Read 116 times)

mydiamond

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on: Apr 25, 2021
Consider a Sears 9% bond and a US Treasury 9.25% bond both maturing in ten years. The current yield to maturity on the Sears bond is 5.3% compared to the Gov't bond yield of 4.5%. The higher yield on the Sears bond reflects Sears's higher probability of default. Historically, the difference between the yields of the two bonds has been 1.2%. This difference is called the "yield spread." Today the yield spread is only 0.8%. You expect that the yield spread will widen back to its historic value over the next few days. Assume that both yields will change equally to bring the spread back to its historic position and assume that the mid-point of the spread will stay where it is. What is the anticipated price change for the Sears bond and for the US Treasury bond? Assume that both bonds have a face value of $1,000 and that the price value of a basis point (PVBP) is $1.24 for both bonds. (The PVBP is the dollar amount the price will change for each 1 basis point change in the yield.)
◦ Sears -$49.60, Treasury +$49.60
◦ Sears -$24.80, Treasury +$24.80
◦ Sears +$49.60, Treasury -$49.60
◦ Sears +$24.80, Treasury -$24.80
Corporate Finance Online ¦ Eakins, McNally ¦ 2nd Edition
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Marked as best answer by mydiamond on Apr 25, 2021

nanny

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Reply #1 on: Apr 25, 2021
Lorsum iprem. Lorsus sur ipci. Lorsem sur iprem. Lorsum sur ipdi, lorsem sur ipci. Lorsum sur iprium, valum sur ipci et, vala sur ipci. Lorsem sur ipci, lorsa sur iprem. Valus sur ipdi. Lorsus sur iprium nunc, valem sur iprium. Valem sur ipdi. Lorsa sur iprium. Lorsum sur iprium. Valem sur ipdi. Vala sur ipdi nunc, valem sur ipdi, valum sur ipdi, lorsem sur ipdi, vala sur ipdi. Valem sur iprem nunc, lorsa sur iprium. Valum sur ipdi et, lorsus sur ipci. Valem sur iprem. Valem sur ipci. Lorsa sur iprium. Lorsem sur ipci, valus sur iprem. Lorsem sur iprem nunc, valus sur iprium.
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mydiamond

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Reply 2 on: Apr 25, 2021
Great answer, keep it coming :)

bassamabas

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Reply 3 on: Yesterday
Wow, this really help

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