Bonds A and B are both priced at par of $1,000. Bond A has $90 annual coupons and 10 years to maturity (yield is 9%). Bond B has $10 annual coupons and 9 years to maturity (yield is 1%). Shock both yields up by 1%. Explore the price sensitivities of the two bonds. Both bonds drop to about $920 Both bonds drop to about $940 A drops to about $920 and B drops to about $940 A drops to about $940 and B drops to about $920

Bonds A and B are both priced at par of $1,000. Bond A has $90 annual coupons and 10 years to maturity (yield is 9%). Bond B has $10 annual coupons and 9 years to maturity (yield is 1%). Shock both yields up by 1%. Explore the price sensitivities of the two bonds. Both bonds drop to about $920 Both bonds drop to about $940 A drops to about $920 and B drops to about $940 A drops to about $940 and B drops to about $920

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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Both Bond Bill and Bond Ted have 11.8 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 7 years to maturity, whereas Bond Ted has 24 years to maturity. Both bonds have a par value of 1,000. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of these bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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Both Bond Sam and Bond Dave have 12.8 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 7 years to maturity, whereas Bond Dave has 24 years to maturity. Both bonds have a par value of 1,000. a. If interest rates suddenly rise by 3 percent, what is the percentage change in the price of these bonds? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. If rates were to suddenly fall by 3 percent instead, what would be the percentage change in the price of these bonds? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Percentage change in price b. Percentage change in price Bond Sam 8888 % Bond Dave
An investor is considering between purchasing a Treasury Bond and a bond from a large corporation. Both bonds have a face value of $1,000. The Treasury Bond has no risk, while the corporate bond has a 10% change of not repaying (a default). Both bonds are 2-year bonds and don't pay any coupons, only the final payment at maturity. a) Assuming that the interest rate in year 1 is 10% and in year 2 is expected to be 5%, what is the current price of each bond? Why are the values different? b) Now assume that the investor purchased the Treasury Bond a year has passed. How much can this bond be sold for if the interest rate is confirmed at 5%? c) Continue assuming that the investor purchased the Treasury Bond a year has passed. If the investor is offered the corporate bond for $800, should it be purchased? Explain.
Bond J has a coupon rate of 5 percent. Bond K has a coupon rate of 15 percent. Both bonds have eight years to maturity, a par value of $1,000, and a YTM of 11 percent, and both make semiannual payments. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. If interest rates suddenly fall by 2 percent instead, what is the percentage change in the price of these bonds? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a. Percentage change in price b. Percentage change in price Bond J % % Bond K % %
(Inflation and Interest rates) What would you expect the nominal rate of interest to be if the real rate is 4.1 percent and the expected inflation rate is 6.6 percent ? The nominal rate of interest would be ____ % (Round to two decimal places.)
Both Bond Bill and Bond Ted have 9.4 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 5 years to maturity, whereas Bond Ted has 22 years to maturity. Both bonds have a par value of 1,000. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of these bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Bond Bill Bond ted a percentage in change b percentage in change
USD has 6.5 percent coupon bonds outstanding with a current market price of $832. The yield to maturity is 16.28 percent and the face value is $1,000. Interest is paid semiannually. How many years is it until these bonds mature? PLEASE DO NOT DO IT ON EXCELL
Consider four different bonds all having the same yield-to-maturity. Bond A is a consol that pays $50 every period forever and is currently priced at $714.29. Bond B, C and D have the same par value of $1,000. However, they differ in their maturity and coupon rate. Bond B and C have a maturity of 5 years, while bond D has a maturity of 10years. Also, bond B and D have a coupon rate of 6%, while bond C has a coupon rate of 8%. [Hint: Coupons are paid annually to faciliate the calculations. Hence, coupon rates are also given annually. You may want to resort to the annuity formula to make your life easier.] a). Suppose the yield-to-maturity increases by 1%. Calculate the price changes on the individual bonds based on the two duration measures and based directly on the pricing formula. Compare your answers.b). Suppose the yield-to-maturity decreases by 1%. Calculate the price changes on the individual bonds based on the two duration measures and based directly on the pricing formula.…
Similar to the mortgage pass-through security (PT), a competing bond has a par value of $100,000, a 4% coupon paid monthly, and a maturity of 258 months. Like most bonds, the payments on this bond are interest only. The current market rate for similar bonds is 3.5%, and prepayments on the mortgage pass through currently equal $100 per month. Assume rates immediately drop to 3%, and prepayments increase to $150 on the mortgage pass through as a result. What is the price of the bond today? Multiple Choice $87,347 $119,766 $115,830 O $100.017
You are considering two bonds, AMD and BBS. Both bonds are selling at par and pay the same amount of interest of $120 annually. Bond AMD will mature in 5 years while bond BBS will mature in 6 years. If the YTM on these two bonds increases by 1%, what do you expect to happen to their bond prices? • A. Both bond prices will increase, but BBS will increase more than AMD. • B. Both bond prices will decrease, but BBS will decrease more than AMD. • C. Both bond prices will increaks, but AMD will increase more than BBS. D. Both bond prices will decrease, but AMD will decrease more than BBS. You observe the current yield curve as follows: r0.5=4%, r1=4.2%, r1.5=4.3%, and Г2=4.1%. What is the price of a T-note which has a coupon rate of 4%, 2 years to maturity, and $1,000 par? • A. $1,064.69 • B. $998.03 • C. $992.52 • D. $988.87 The interest rates on 3- and 2-year Treasuries are 2.35% and 2.20%, respectively. If you estimate that the 1-year expected spot rate in year 3 is 2.53%, what is…

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