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Consider a 4 year French government bond with face value of 1,000 and coupon rate...

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Accounting

Consider a 4 year French government bond with face value of 1,000 and coupon rate 8%(paying coupons annually).Investors require a yield (YTM) of 14% on this bond.

a)Calculate the price of this bond. Does it sell at premium or at discount?Explain.

b)Explain what a modified duration is, calculate the modified duration for this bond and use it to answer on how the bonds price changes if the yield to maturity increases or decreases by 5%. Discuss the quality of this approximation.

c)Explain briefly how the rating agencies evaluate the default risk of different corporate bonds and discuss the companys key financial ratios that are used for the purpose of preparing such ratings.

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