1. Consider the following four bonds (assuming semi-annual compounding and the par value of $1,000) A 10% 10 Coupon Rate Maturity (years) B 10% 25 40 a) What is the price of each bond if the required yield is 10%? b) What is the price of each bond if the required yield decreases from 10% to 9%, and by what percentage did the price of each bond change? c) What is the price of each bond if the required yield increases from 10% to 11%, and by what percentage did the price of each bond change? d) e) f) Comparing bonds A and D, what can you say about the relative price volatility of a bond with lower coupon rate compared to one with higher coupon rate? C 10% D 12% 10 From your answers to Question 1, parts b and c, what can you say about the relative price volatility of a bond when the yield decreases compared to when the yield increases? Comparing bonds A, B, and C, what can you say about the relative price volatility of a bond with longer maturity compared to one with shorter maturity?

1. Consider the following four bonds (assuming semi-annual compounding and the par value of $1,000) A 10% 10 Coupon Rate Maturity (years) B 10% 25 40 a) What is the price of each bond if the required yield is 10%? b) What is the price of each bond if the required yield decreases from 10% to 9%, and by what percentage did the price of each bond change? c) What is the price of each bond if the required yield increases from 10% to 11%, and by what percentage did the price of each bond change? d) e) f) Comparing bonds A and D, what can you say about the relative price volatility of a bond with lower coupon rate compared to one with higher coupon rate? C 10% D 12% 10 From your answers to Question 1, parts b and c, what can you say about the relative price volatility of a bond when the yield decreases compared to when the yield increases? Comparing bonds A, B, and C, what can you say about the relative price volatility of a bond with longer maturity compared to one with shorter maturity?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Consider the four bonds having annual payments as shown in the following table Year Bond A Bond B Bond C Bond D Year 1 100 50 0 0 + 1000 Year 2 100 50 0 0 Year 3 100+1000 50+ 1000 0 + 1000 0 (a) If each of the bonds is traded to produce a 15% yield, determine the price of each bond. (b) If Bond C is sold for $900, what is the yield to maturity? (c) What is the yield to maturity if Bond D is sold for $900?
1) ( end of each year. (e¬0.1 = 0.9, e¬0.2 = 0.8, e-0.3 = 0.7, e-0.4 - 0.6) s) A four-year bond with a yield of 10% (continuously compounded) pays an 20% coupon at the a) What is the bond's price? b) What is the bond's duration? c) Use the duration to calculate the effect on the bond's price of a 0.15% increase in its yield.
Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 5 Required: a. Calculate the forward rate of interest for each year. b. How could you construct a 1-year forward loan beginning in year 3? c. How could you construct a 1-year forward loan beginning in year 4? Required A Price $940.93 Complete this question by entering your answers in the tabs below. 868.39 800.92 735.40 670.48 Required B Maturity (years) 2 3 Calculate the forward rate of interest for each year. Note: Round your answers to 2 decimal places. Required C Forward Rate % % Prov 12 of 12 Next
According to the expectations theory, what will be the interest rate on a three-year bond if the two-year term premium is 1.0% while the three-year term premium is 2.0%, and a one-year bond has an interest rate of 4% and is expected to have an interest rate of 5% next year and 6% in two year? Select one: Oa. 6.0% O b. 15.0% Oc. 5.0% O d. 4.0%
Assume that a $10,000.00 bond paying 8.5% interest is currently selling at 106. a. What is the current selling price of the bond?b. What is the current yield of this bond?
Suppose a 10% 3years bond with a FV of $1000 Spot rates r1= 10%, r2= 12%, r3=13%. Calculate the forward rate required to calculate the bond price using the forward rate 1f2
Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. Maturity (Years) 1 2 3 4 5 Price $983.78 865.89 797.92 732.00 660.24 Required: a. Calculate the forward rate of interest for each year. b. How could you construct a 1-year forward loan beginning in year 3? c. How could you construct a 1-year forward loan beginning in year 4?
c) Suppose you observe the following three bonds. Assume that all bonds are denominated at $100 face value per contract and that they pay their coupons annually. Price Coupon Maturity (years) Bond A 111.42 15 3 Bond B 108.33 15 Bond C 116.61 15 1 i) Compute the spot rates r0,1, r0,2 and r0,3. ii) Compute the forward rates r1,2 and r2,3.
K Assume that a bond will make payments every six months as shown on the following timeline (using six-month periods): 0 2 5 Period $19.53 a. What is the maturity of the bond (in years)? b. What is the coupon rate (as a percentage)? c. What is the face value? Cash Flows View an example Get more help. ★ a. What is the maturity of the bond (in years)? The maturity is years. (Round to the nearest integer.) A 6 1 MacBook Pro & 7 $19.53 * 8 9 C 59 $19.53 60 $19.53+$1,000 Clear all BUB 0 {
Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. Maturity (Years) Price 1 $ 998.78 2 880.89 3 815.92 4 752.40 5 685.70 a. Calculate the forward rate of interest for each year. (Round your answers to 2 decimal places.) b. How could you construct a 1-year forward loan beginning in year 3? (Round your Rate of synthetic loan answer to 2 decimal places.) c. How could you construct a 1-year forward loan beginning in year 4? (Round your answers to 2 decimal places.)
A6) Finance What is the YTM of a four-year semi-annual pay bond with a par value of $1,000 and a 4 percent coupon rate when the bond is priced at $932.35? 5.95% 5.92% 2.96% 11.90%
According to the expectations theory, what will be the interest rate on a three-year bond if the two-year term premium is 1.0% while the three- year term premium is 2.0%, and a one-year bond has an interest rate of 4% and is expected to have an interest rate of 5% next year and 6% in two year? Select one: O a. 5.0% O b. 15.0% O c. 4.0% O d. 6.0%

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