Consider two bonds, a 3-year bond paying an annual coupon of 6.80% and a 10-year bond also with an annual coupon of 6.80%. Both currently sell at a face value of $1,000. Now suppose interest rates rise to 11%. a. What is the new price of the 3-year bonds? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Bond price b. What is the new price of the 10-year bonds? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Bond price c. Which bonds are more sensitive to a change in interest rates? O Long-term bonds O Short-term bonds

Consider two bonds, a 3-year bond paying an annual coupon of 6.80% and a 10-year bond also with an annual coupon of 6.80%. Both currently sell at a face value of $1,000. Now suppose interest rates rise to 11%. a. What is the new price of the 3-year bonds? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Bond price b. What is the new price of the 10-year bonds? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Bond price c. Which bonds are more sensitive to a change in interest rates? O Long-term bonds O Short-term bonds

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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need help with finding the current yield and capital gains yield for bond p and bond d, thank you
Consider a bond with a coupon of 4.6 percent, five years to maturity, and a current price of $1,047.80. Suppose the yield on the bond suddenly increases by 2 percent. a. Use duration to estimate the new price of the bond. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Price b. Calculate the new bond price using the usual bond pricing formula. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Price
Consider a bond that has a life of 2 years and pays a coupon of 10% per annum (with semiannual payments); the yield is 5% per annum with semiannual compounding.(a) What is the bond’s price?(b) What is the bond’s duration?(c) Suppose that the bond price is the one you computed in part (a) and that the 6M, 12M, and 18M zero rates are respectively 4.2%, 4.8% and 5.6% per annum. What is the 2Y zero rate assuming all rates are quoted with semiannual compounding?
Compute the price of a 6.3 percent coupon bond with 15 years left to maturity and a market interest rate of 10.4 percent. (Assume interest payments are semiannual.) (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Bond price
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Consider three bonds with 5.40% coupon rates, all making annual coupon payments and all selling at face value. The short-term bond has a maturity of 4 years, the intermediate-term bond has a maturity of 8 years, and the long-term bond has a maturity of 30 years. a. What will be the price of the 4-year bond if its yield increases to 6.40%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What will be the price of the 8-year bond if its yield increases to 6.40%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. What will be the price of the 30-year bond if its yield increases to 6.40%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. What will be the price of the 4-year bond if its yield decreases to 4.40%? (Do not round intermediate calculations. Round your answer to 2 decimal places.) e. What will be the price of the 8-year bond if its yield decreases to 4.40%? (Do not round…
An investor wants to find the duration of a(n) 10-year, 6% semiannual pay, noncallable bond that's currently priced in the market at $541.25, to yield 15%. Using a 250 basis point change in yield, find the effective duration of this bond (Hint: use Equation 11.11). The new price of the bond if the market interest rate decreases by 250 basis points (or 2.5%) is $ (Round to the nearest cent.)
A 30-year maturity bond making annual coupon payments with a coupon rate of 14.0% has duration of 11.36 years and convexity of 186.4. The bond currently sells at a yield to maturity of 8%. a. Find the price of the bond if Its yield to maturity falls to 7%. (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Price of the bond b. What price would be predicted by the duration rule? (Do not round Intermediate calculations. Round your answer to 2 decimal places.) Predicted price c. What price would be predicted by the duration-with-convexity rule? (Do not round Intermediate calculations. Round your answ to 2 decimal places.) Predicted price
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don't provide handwritten solution.
Consider a bond with a coupon of 5 percent, seven years to maturity, and a current price of $1,052.80. Suppose the yield on the bond suddenly increases by 2 percent. a. Use duration to estimate the new price of the bond. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Price b. Calculate the new bond price using the usual bond pricing formula. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. Price

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