dBoth Bond Sam and Bond Dave have 12.4 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 5years to maturity, whereas Bond Dave has 22 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 answersas 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 priceb. Percentage change in priceBond SamBond Dave18.74 %10.20%11.75%27.69%

The Reaction of Bond Prices to Interest Rate ShiftsThe percentage change in a bond's price is…

Answered: d Both Bond Sam and Bond Dave have 12.4…

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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Bond A makes semi-annual interest payments of $30. Bond B makes an annual payment of $50. All else equal, which one has the lower coupon rate? Select one: a. B b. A=B c. A
Illustrate your answers by graphing bond prices versus time to LO 2 19. Interest Rate Risk Both Bond Bill and Bond Ted have 5.8 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 5 years to maturity, whereas Bond Ted has 25 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Bill? Of Bond Ted? Both bonds have a par value of $1,000. If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Bill be then? Of Bond Ted? Illustrate your answers by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of longer-term bonds?
不 Which of the bonds A to D is most sensitive to a 1%drop in interest rates from Consider the following bonds: 6.5% to 5.5% Which bond is least sensitive? Bond Data table is most sensitive. (Select from the drop-down menu.) (Click on the following icon in order to copy its contents into a spreadsheet.) Bond A BC D Coupon Rate (annual payments) 0.0% 0.0% 4.3% 7.7% Print Done Maturity (years) 10 15 15 10
Consider two bonds, a 3-year bond paying annual coupons at 5% and a 10-year bond also paying annual coupons at 5%. Coupons are paid annually (not semiannually). Both are currently trading at par (i.e., price = face value). A. What must be the current discount rate for these bonds? B. Suppose that the discount rate for these bonds suddenly rise to 9%. What is the new price of the 3-year bond? What is the new price of the 10-year bond? C. Compare the price changes (i.e., the current price of $1,000 vs. the new bond price from Part B) of two bonds. Determine whether long-term or short-term bonds are more sensitive to interest rate fluctuation.
Both Bond Sam and Bond Dave have 6.5 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 3 years to maturity, whereas Bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam? Of Bond Dave? If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Sam be then? Of Bond Dave? All bond price answers should be dollar prices. Bond Sam: Coupon rate Settlement date Maturity date Redemption (% of par) # of coupons per year Bond Dave: Coupon rate Settlement date Maturity date Redemption (% of par) # of coupons per year Sheet1 1 *** 6.5% 1/1/2000 1/1/2003 100 2 6.5% 1/1/2000 1/1/2020 100 2 4
Do not use excel, use formulas to compute the question You have two bonds, Bond A and bond B: A 3-year zero-coupon bond with face value of $1,000 with a yield-to-maturity of 4%. A 6-year bond with an annual coupon payment C (to be paid out starting a year from now), a face value of $1,000 and yield-to-maturity of 5%. Assume that compounding takes place annually. If the price of Bond A is equal to the price of Bond B, what is the value of Bond B’s coupon payments (C)?
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An insurance company must make payments to a customer of $10 million in one year and $5 million in five years. The yield curve is flat at 10%. Required: a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase? Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b. What must be the face value and market value of that zero-coupon bond? Note: Do not round intermediate calculations. Enter your answers in millions rounded to 2 decimal places. a. Maturity of zero coupon bond b. Face value b. Market value years million million
Bond J has a coupon rate of 4.2 percent. Bond K has a coupon rate of 14.2 percent. Both bonds have ten years to maturity, a par value of $1,000, and a YTM of 9.4 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? (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? (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 do do % %
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A 6.45 percent coupon bond with 24 years left to maturity is priced to offer a 5.7 percent yield to maturity. You believe that in one year, the yield to maturity will be 6.2 percent. What would be the total return of the bond in dollars? (Assume interest payments are semiannual.) (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.) Answer is complete but not entirely correct. Total return $ 2.64 × What would be the total return of the bond in percent? (Assume interest payments are semiannual.) (Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to 2 decimal places.) Answer is complete but not entirely correct. Total return 0.14%

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