The value of the bond price if its yield to maturity falls to 7% using spreadsheet or financial calculator. Introduction: Bond price: The bond price is the actual price of the bond at which the investor can buy or sell that bond. The bond price is the addition of the current values with coupon payments and current values of par value at maturity.

Question

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Answer 1

Question

Chapter 16, Problem 16PS

a.

Summary Introduction

To calculate: The value of the bond price if its yield to maturity falls to 7% using spreadsheet or financial calculator.

Introduction:

Bond price: The bond price is the actual price of the bond at which the investor can buy or sell that bond. The bond price is the addition of the current values with coupon payments and current values of par value at maturity.

b.

Summary Introduction

To calculate: The value of the predicted price by duration rule.

Introduction:

Predicted value of the bond price: The predicted value of the bond price is a future estimation of the price. This price is calculated by the coupon value of the bond. The duration rule establishes a relation between price and interest rates.

c.

Summary Introduction

To calculate: The value of predicted price using duration rule with convexity.

Introduction:

Predicted value of the bond price: The predicted value of the bond price is a future estimation of the price. This price is calculated by the coupon value of the bond. The duration rule establishes a relation between price and interest rates.

d.

Summary Introduction

To calculate: The percentage error in price and give conclusion about the accuracy with two rules.

Introduction:

Error of quantity: The error of any quantity is the comparison between the actual value and measured value. For every quantity the acceptable value of error is 10%, 1% error is a high value of error. The value of error should be less than 1%.

e.

Summary Introduction

To calculate: The bond price, predicted price change and error when YTM increases to 9%.

Introduction:

Bond price: The bond price is the fair price of the bond. The predicted value is measured value for a future time. The error of any quantity is the difference of measured value to the actual value of that quantity.

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Suppose you purchase a $1000 Face-Value Zero-Coupon Bond with maturity 30 years and yield to maturity 4% quoted with annual compounding. Show the bond cash flows on a time line and compute the current price of the bond Draw a graph to illustrate how the price of this bond will change as it gets closer to maturity – Price (on y axis) vs Time (on x axis). Why is a zero-coupon bond more sensitive to interest rate changes than similar coupon bearing bonds (2 or 3 sentences)?

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

A 30-year maturity bond making annual coupon payments with a coupon rate of 11.00% has a ation of 13.50 years. The bond currently sells at a yield to maturity of 5.75%. Ducation a. Find the exact dollar price of the bond if its yield to maturity falls to 4.75%. What is the % change in price? b. Assume that you need to make a quick approximation using the duration rule. What is the % change in price as approximated by the duration rule when the yield to maturity falls to 4.75%? c. Does the duration-rule provide a good approximation of the % price change in this case? Why or why not?

Answer 2

Question

Chapter 16, Problem 16PS

a.

Summary Introduction

To calculate: The value of the bond price if its yield to maturity falls to 7% using spreadsheet or financial calculator.

Introduction:

Bond price: The bond price is the actual price of the bond at which the investor can buy or sell that bond. The bond price is the addition of the current values with coupon payments and current values of par value at maturity.

b.

Summary Introduction

To calculate: The value of the predicted price by duration rule.

Introduction:

Predicted value of the bond price: The predicted value of the bond price is a future estimation of the price. This price is calculated by the coupon value of the bond. The duration rule establishes a relation between price and interest rates.

c.

Summary Introduction

To calculate: The value of predicted price using duration rule with convexity.

Introduction:

Predicted value of the bond price: The predicted value of the bond price is a future estimation of the price. This price is calculated by the coupon value of the bond. The duration rule establishes a relation between price and interest rates.

d.

Summary Introduction

To calculate: The percentage error in price and give conclusion about the accuracy with two rules.

Introduction:

Error of quantity: The error of any quantity is the comparison between the actual value and measured value. For every quantity the acceptable value of error is 10%, 1% error is a high value of error. The value of error should be less than 1%.

e.

Summary Introduction

To calculate: The bond price, predicted price change and error when YTM increases to 9%.

Introduction:

Bond price: The bond price is the fair price of the bond. The predicted value is measured value for a future time. The error of any quantity is the difference of measured value to the actual value of that quantity.

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Answer 3

Question

Chapter 16, Problem 16PS

a.

Summary Introduction

To calculate: The value of the bond price if its yield to maturity falls to 7% using spreadsheet or financial calculator.

Introduction:

Bond price: The bond price is the actual price of the bond at which the investor can buy or sell that bond. The bond price is the addition of the current values with coupon payments and current values of par value at maturity.

b.

Summary Introduction

To calculate: The value of the predicted price by duration rule.

Introduction:

Predicted value of the bond price: The predicted value of the bond price is a future estimation of the price. This price is calculated by the coupon value of the bond. The duration rule establishes a relation between price and interest rates.

c.

Summary Introduction

To calculate: The value of predicted price using duration rule with convexity.

Introduction:

Predicted value of the bond price: The predicted value of the bond price is a future estimation of the price. This price is calculated by the coupon value of the bond. The duration rule establishes a relation between price and interest rates.

d.

Summary Introduction

To calculate: The percentage error in price and give conclusion about the accuracy with two rules.

Introduction:

Error of quantity: The error of any quantity is the comparison between the actual value and measured value. For every quantity the acceptable value of error is 10%, 1% error is a high value of error. The value of error should be less than 1%.

e.

Summary Introduction

To calculate: The bond price, predicted price change and error when YTM increases to 9%.

Introduction:

Bond price: The bond price is the fair price of the bond. The predicted value is measured value for a future time. The error of any quantity is the difference of measured value to the actual value of that quantity.

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Answer 4

Question

Chapter 16, Problem 16PS

a.

Summary Introduction

To calculate: The value of the bond price if its yield to maturity falls to 7% using spreadsheet or financial calculator.

Introduction:

Bond price: The bond price is the actual price of the bond at which the investor can buy or sell that bond. The bond price is the addition of the current values with coupon payments and current values of par value at maturity.

b.

Summary Introduction

To calculate: The value of the predicted price by duration rule.

Introduction:

Predicted value of the bond price: The predicted value of the bond price is a future estimation of the price. This price is calculated by the coupon value of the bond. The duration rule establishes a relation between price and interest rates.

c.

Summary Introduction

To calculate: The value of predicted price using duration rule with convexity.

Introduction:

Predicted value of the bond price: The predicted value of the bond price is a future estimation of the price. This price is calculated by the coupon value of the bond. The duration rule establishes a relation between price and interest rates.

d.

Summary Introduction

To calculate: The percentage error in price and give conclusion about the accuracy with two rules.

Introduction:

Error of quantity: The error of any quantity is the comparison between the actual value and measured value. For every quantity the acceptable value of error is 10%, 1% error is a high value of error. The value of error should be less than 1%.

e.

Summary Introduction

To calculate: The bond price, predicted price change and error when YTM increases to 9%.

Introduction:

Bond price: The bond price is the fair price of the bond. The predicted value is measured value for a future time. The error of any quantity is the difference of measured value to the actual value of that quantity.

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Answer 5

Chapter 16, Problem 16PS

a.

Summary Introduction

To calculate: The value of the bond price if its yield to maturity falls to 7% using spreadsheet or financial calculator.

Introduction:

Bond price: The bond price is the actual price of the bond at which the investor can buy or sell that bond. The bond price is the addition of the current values with coupon payments and current values of par value at maturity.

b.

Summary Introduction

To calculate: The value of the predicted price by duration rule.

Introduction:

Predicted value of the bond price: The predicted value of the bond price is a future estimation of the price. This price is calculated by the coupon value of the bond. The duration rule establishes a relation between price and interest rates.

c.

Summary Introduction

To calculate: The value of predicted price using duration rule with convexity.

Introduction:

Predicted value of the bond price: The predicted value of the bond price is a future estimation of the price. This price is calculated by the coupon value of the bond. The duration rule establishes a relation between price and interest rates.

d.

Summary Introduction

To calculate: The percentage error in price and give conclusion about the accuracy with two rules.

Introduction:

Error of quantity: The error of any quantity is the comparison between the actual value and measured value. For every quantity the acceptable value of error is 10%, 1% error is a high value of error. The value of error should be less than 1%.

e.

Summary Introduction

To calculate: The bond price, predicted price change and error when YTM increases to 9%.

Introduction:

Bond price: The bond price is the fair price of the bond. The predicted value is measured value for a future time. The error of any quantity is the difference of measured value to the actual value of that quantity.

Answer 6

Chapter 16, Problem 16PS

a.

Summary Introduction

To calculate: The value of the bond price if its yield to maturity falls to 7% using spreadsheet or financial calculator.

Introduction:

Bond price: The bond price is the actual price of the bond at which the investor can buy or sell that bond. The bond price is the addition of the current values with coupon payments and current values of par value at maturity.

Answer 7

Chapter 16, Problem 16PS

a.

Summary Introduction

To calculate: The value of the bond price if its yield to maturity falls to 7% using spreadsheet or financial calculator.

Introduction:

Bond price: The bond price is the actual price of the bond at which the investor can buy or sell that bond. The bond price is the addition of the current values with coupon payments and current values of par value at maturity.

Answer 8

b.

Summary Introduction

To calculate: The value of the predicted price by duration rule.

Introduction:

Predicted value of the bond price: The predicted value of the bond price is a future estimation of the price. This price is calculated by the coupon value of the bond. The duration rule establishes a relation between price and interest rates.

Answer 9

b.

Summary Introduction

To calculate: The value of the predicted price by duration rule.

Introduction:

Predicted value of the bond price: The predicted value of the bond price is a future estimation of the price. This price is calculated by the coupon value of the bond. The duration rule establishes a relation between price and interest rates.

Answer 10

c.

Summary Introduction

To calculate: The value of predicted price using duration rule with convexity.

Introduction:

Predicted value of the bond price: The predicted value of the bond price is a future estimation of the price. This price is calculated by the coupon value of the bond. The duration rule establishes a relation between price and interest rates.

Answer 11

c.

Summary Introduction

To calculate: The value of predicted price using duration rule with convexity.

Introduction:

Predicted value of the bond price: The predicted value of the bond price is a future estimation of the price. This price is calculated by the coupon value of the bond. The duration rule establishes a relation between price and interest rates.

Answer 12

d.

Summary Introduction

To calculate: The percentage error in price and give conclusion about the accuracy with two rules.

Introduction:

Error of quantity: The error of any quantity is the comparison between the actual value and measured value. For every quantity the acceptable value of error is 10%, 1% error is a high value of error. The value of error should be less than 1%.

Answer 13

d.

Summary Introduction

To calculate: The percentage error in price and give conclusion about the accuracy with two rules.

Introduction:

Error of quantity: The error of any quantity is the comparison between the actual value and measured value. For every quantity the acceptable value of error is 10%, 1% error is a high value of error. The value of error should be less than 1%.

Answer 14

e.

Summary Introduction

To calculate: The bond price, predicted price change and error when YTM increases to 9%.

Introduction:

Bond price: The bond price is the fair price of the bond. The predicted value is measured value for a future time. The error of any quantity is the difference of measured value to the actual value of that quantity.

Answer 15

e.

Summary Introduction

To calculate: The bond price, predicted price change and error when YTM increases to 9%.

Introduction:

Bond price: The bond price is the fair price of the bond. The predicted value is measured value for a future time. The error of any quantity is the difference of measured value to the actual value of that quantity.

Answer 16

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Answer 17

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Answer 18

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Answer 19

Ch. 16 - Prob. 1PS Ch. 16 - Prob. 2PS Ch. 16 - Prob. 3PS Ch. 16 - Prob. 4PS Ch. 16 - Prob. 5PS Ch. 16 - Prob. 6PS Ch. 16 - Prob. 7PS Ch. 16 - Prob. 8PS Ch. 16 - Prob. 9PS Ch. 16 - Prob. 10PS

Solution Summary: The author explains the value of the bond price if its yield to maturity falls to 7% using spreadsheet or financial calculator.

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