squidgy_wiji
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Hey I'm just trying to teach myself some bond pricing theory. I found a list of questions online and I knew the answer to all the questions but this one. Can anyone help me out? I would really appreciate it.
Question:
If interest rates go up/down...what would you do with a bond that is presently variable in coupon rate that has a convert option to a fixed coupon bond?
My Answer:
Well if interest rates went up the value of a normal bond will decrease. But this bond has a variable coupon so that means the coupon rate will increase so the yield will increase which will increase the price of the bond.
Do you have to do a DCF calculation for the bond with the variable rate and fixed rate and see which has a greater yield to get the answer or is there a simpler answer?
Thanks
Question:
If interest rates go up/down...what would you do with a bond that is presently variable in coupon rate that has a convert option to a fixed coupon bond?
My Answer:
Well if interest rates went up the value of a normal bond will decrease. But this bond has a variable coupon so that means the coupon rate will increase so the yield will increase which will increase the price of the bond.
Do you have to do a DCF calculation for the bond with the variable rate and fixed rate and see which has a greater yield to get the answer or is there a simpler answer?
Thanks