5. A 4 year bond that pays 7.5% semi-annual coupon was issued when the yieldwas 8%. If the yield goes down 55 basispoint, what would be the predicted priceof the bond?6. Consider a 15 year 6.5% semi-annualcoupon bond whose duration is approx.9.50 years when required rate of return(yield to maturity) is 7.58%. Prove thatthis bond is immunized if you hold it for9.50 years.

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A 4 year bond that pays 7.5% semi- annual coupon was issued when the yield was 8%. If the yield goes down 55 basis point, what would be the predicted price of the bond?

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

5. A 4 year bond that pays 7.5% semi-
annual coupon was issued when the yield
was 8%. If the yield goes down 55 basis
point, what would be the predicted price
of the bond?
6. Consider a 15 year 6.5% semi-annual
coupon bond whose duration is approx.
9.50 years when required rate of return
(yield to maturity) is 7.58%. Prove that
this bond is immunized if you hold it for
9.50 years.

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