UI 1onger with the same coupon. The prices of bonds with smaller coupons are more volatile than bonds with larger coupons for the same term to maturity. However, you cannot compare the relative price changes on bonds with different coupons and maturities unless you consider their durations. Consider the following GH¢1000 par value bonds when the current interest rate is 8 percent: Bond Coupon Term Duration А 8% 8. 6.2 years В 0% 14% 10 Compute the duration for bonds B and C, and rank the three bonds on the basis of their price volatility.
UI 1onger with the same coupon. The prices of bonds with smaller coupons are more volatile than bonds with larger coupons for the same term to maturity. However, you cannot compare the relative price changes on bonds with different coupons and maturities unless you consider their durations. Consider the following GH¢1000 par value bonds when the current interest rate is 8 percent: Bond Coupon Term Duration А 8% 8. 6.2 years В 0% 14% 10 Compute the duration for bonds B and C, and rank the three bonds on the basis of their price volatility.
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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Transcribed Image Text:The prices of longer-term bonds are more volatile than the prices of shorter-term bonds
with the same coupon. The prices of bonds with smaller coupons are more volatile than
bonds with larger coupons for the same term to maturity. However, you cannot compare
the relative price changes on bonds with different coupons and maturities unless you
consider their durations. Consider the following GH¢1000 par value bonds when the
6.
current interest rate is 8
percent:
Bond
Coupon
Term
Duration
А
8%
8
6.2 years
B
0%
?
14%
10
?
Compute the duration for bonds B and C, and rank the three bonds on the basis of their
price volatility.
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