1. An annual bond has a face value of $1,000.00, makes an annual coupon payment of $12.00 per year, has a discount rate per year of 4.37%, and has 8 years to maturity. What is price of this bond? 2 A 4 Yar Treasu
1. An annual bond has a face value of $1,000.00, makes an annual coupon payment of $12.00 per year, has a discount rate per year of 4.37%, and has 8 years to maturity. What is price of this bond? 2 A 4 Yar Treasu
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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Transcribed Image Text:1. An annual bond has a face value of $1,000.00, makes an annual coupon
payment of $12.00 per year, has a discount rate per year of 4.37%, and has
8 years to maturity. What is price of this bond?
2. A 4 year Treasury Bond with a face value of $1,000 and an annual coupon
rate of 6.50% had a yield to maturity of 3.15%. This bond makes 2 (semiannual) coupon payments per year and
thus has 8 periods until maturity.
What is price of this bond based on the Effective Annual Rate (EAR)
convention? What is price of this bond based on the Annual Percentage Rate
(APR) convention? On the same date, the following exchanges rates were
observed: $1.00 = ¥9.5350, $1.00 = €0.4206, and $1 = IDR 52.75. Under
both the EAR and APR conventions, what is the price of the bond in Chinese
Yuan (¥), European Euros (€), and in Indian Rupees (IDR)?
3. Perform instant experiments on whether changing various inputs causes an
increase or decrease in the Bond Price and by how much.
(a.) What happens when the annual coupon rate is increased?
(b.) What happens when the yield to maturity is increased?
(c.) What happens when the number of payments / year is increased?
d.) What happens when the face value is increased?
(e.) What is the relationship between the price of a par bond and time to
maturity?
(f.) What happens when the annual coupon rate is increased to the point that
it equals the yield to maturity? What happens when it is increased
further?
4. A 4 year Treasury Bond with a face value of $1,000 and an annual coupon
rate of 3.20% has a yield to maturity of 2.53%. This bond makes 2 (semiannual) coupon payments per year and
thus has 8 periods until maturity.
What is the duration, modified duration, and convexity of this bond based on
the Annual Percentage Rate (APR) convention? What is the duration,
modified duration, and convexity of this bond based on the Effective Annual
Rate (EAR) convention? What is the intuitive interpretation of duration?
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