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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Question
![1. Consider the following four bonds (assuming semi-annual compounding and the par
value of $1,000)
C
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) 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?
e)
f)
Coupon Rate
Maturity (years)
A
10%
10
B
10%
D
12%
10
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?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F00cf11b4-9fb9-4bb4-9dd4-8775ed33f82e%2F7e6c592c-b738-454d-9fff-ca8d805e842a%2F1grpsvh_processed.jpeg&w=3840&q=75)
Transcribed Image Text:1. Consider the following four bonds (assuming semi-annual compounding and the par
value of $1,000)
C
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) 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?
e)
f)
Coupon Rate
Maturity (years)
A
10%
10
B
10%
D
12%
10
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?
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