Bond A Coupon 8% Yield to maturity 8% Maturity (years) 2 Par Price Bond B 9% 8% 5 $100.00 $100.00 $100.00 $104.055 (a) Calculate the actual price of the bonds for a 100-basis-point (1% annual) increase in interest rates. (b) Using (modified) duration, estimate the price of the bonds for a 100-basis-
Bond A Coupon 8% Yield to maturity 8% Maturity (years) 2 Par Price Bond B 9% 8% 5 $100.00 $100.00 $100.00 $104.055 (a) Calculate the actual price of the bonds for a 100-basis-point (1% annual) increase in interest rates. (b) Using (modified) duration, estimate the price of the bonds for a 100-basis-
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
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3) Answer the below questions for bonds A and B.
Bond A 8% 8%
2
$100.00 $100.00 $100.00 $104.055
Coupon
Yield to maturity Maturity (years) Par
Price
Bond B 9%
8%
(a) Calculate the actual price of the bonds for a 100-basis-point (1% annual) increase in interest rates.
(b) Using (modified) duration, estimate the price of the bonds for a 100-basis-
5
point (1% annual) increase in interest rates.
(c) Explain why your answers in parts (a) and (b) differ.
Transcribed Image Text:**Bond Analysis and Pricing Problem Set**
Answer the below questions for bonds A and B.
| | Bond A | Bond B |
|-------------------|---------|----------|
| Coupon | 8% | 9% |
| Yield to Maturity | 8% | 8% |
| Maturity (years) | 2 | 5 |
| Par | $100.00 | $100.00 |
| Price | $100.00 | $104.055 |
(a) Calculate the actual price of the bonds for a 100-basis-point (1% annual) increase in interest rates.
(b) Using (modified) duration, estimate the price of the bonds for a 100-basis-point (1% annual) increase in interest rates.
(c) Explain why your answers in parts (a) and (b) differ.
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