1. Price sensitivity of 8% coupon bond with coupon paid semi-annually. Assume the face value of this bond is $1,000. Maturity 2 5 10 20 10% $922.8 $875.4 8% $1,000 $1,000 $1,000 $1,000 6% $1,037.2 $1,231.2 Range

Essentials Of Investments
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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**Price Sensitivity of 8% Coupon Bond with Semi-Annual Payments**

This table illustrates the price sensitivity of an 8% coupon bond with varying interest rates and maturities. The bond has a face value of $1,000.

|          | **10%** | **8%**  | **6%**    | **Range** |
|----------|---------|---------|-----------|-----------|
| **Maturity** |         |         |           |           |
| 2        | $1,000  | $1,000  | $1,037.2  |            |
| 5        | $922.8  | $1,000  | $1,120    |            |
| 10       | $875.4  | $1,000  | $1,231.2  |            |
| 20       |         | $1,000  |           |            |

**Explanation:**

- The columns represent different yield rates (10%, 8%, and 6%).
- The rows indicate years to maturity (2, 5, 10, and 20).
- The bond price changes with varying yield rates, showing how sensitive the bond price is to these changes. 
- At an 8% yield rate, the bond price equates to its face value of $1,000 across all maturities.
- The "Range" column provides a comparison of bond prices at the lowest and highest yield rates.

This data assists in understanding the impact of interest rate fluctuations on bond pricing.
Transcribed Image Text:**Price Sensitivity of 8% Coupon Bond with Semi-Annual Payments** This table illustrates the price sensitivity of an 8% coupon bond with varying interest rates and maturities. The bond has a face value of $1,000. | | **10%** | **8%** | **6%** | **Range** | |----------|---------|---------|-----------|-----------| | **Maturity** | | | | | | 2 | $1,000 | $1,000 | $1,037.2 | | | 5 | $922.8 | $1,000 | $1,120 | | | 10 | $875.4 | $1,000 | $1,231.2 | | | 20 | | $1,000 | | | **Explanation:** - The columns represent different yield rates (10%, 8%, and 6%). - The rows indicate years to maturity (2, 5, 10, and 20). - The bond price changes with varying yield rates, showing how sensitive the bond price is to these changes. - At an 8% yield rate, the bond price equates to its face value of $1,000 across all maturities. - The "Range" column provides a comparison of bond prices at the lowest and highest yield rates. This data assists in understanding the impact of interest rate fluctuations on bond pricing.
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