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What is the price of each of the following bonds ($1,000 principal) if the current interest...

What is the price of each of the following bonds ($1,000 principal) if the current interest rate is 8 percent?

Firm A: coupon 5%, Maturity 7 years

Firm B: coupon 5%, Maturity 14 years

Firm C: coupon 12%, Maturity 7 years

Firm D: coupon 12%, Maturity 14 years

b) What is the duration of each bond?

c) Rank the bonds in terms of price fluctuations with the least volatile bond first and the most volatile bond last as judged by each bond’s duration

d) Confirm your volatility ranking by determining the percentage change in the price of each bond if interest rates rise up to 11%.

PLEASE SHOW WORK

Solutions

Expert Solution

[NOTE : i am solving this with the help of excel and i will show the work

i have presumed the maturity dates and settlement dates to match with maturity as given in problem]

Bond with low duration has low volatility and vice versa. rankings are based on duration

Formulas will be as follows:

(Incase of any further explanation please comment)

jeff jeffy answered 2 years ago
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