Consider two bonds, X and Y. Each pays a coupon rate of interest of 8% semi-annually....

Consider two bonds, X and Y. Each pays a coupon rate of interest of 8% semi-annually. Bond X will mature in 3 years while Bond Y will mature in 2 years. If the yields to maturity on the two bonds change from 8% to 7.5%, ________.

Group of answer choicesboth bonds will decrease in value but Bond X will decrease more than Bond Y. both bonds will increase in value but Bond Y will increase more than Bond X. both bonds will decrease in value, but it is impossible to state which bond will decrease more. both bonds will increase in value but Bond X will increase more than Bond Y. both bonds will decrease in value but Bond Y will decrease more than Bond X.

Expert Solution

Generally higher maturity bonds OR lower coupon bonds are more sensitive to changes in interest rate.

Now here, the coupon rate is same, but Bond X has a higher maturity then Bond Y, so price of Bond X will change more than the change in price of Bond Y.

As YTM is falling, Price of Bond X will increase more than Bond Y

Answer : both bonds will increase in value but Bond X will increase more than Bond Y

we can also prove it by finding prices. I have atttached that also.

jeff jeffy answered 2 years ago

Consider a bond with a coupon rate of 8% and coupons paid semi annually the par...

Consider a bond with a coupon rate of 8% and coupons paid semi annually the par value is $1000 and the bond has 10 year to maturity the yield to maturity is 10% what is the value of the bond?

A coupon bond which pays interest semi-annually has a par value of $1,000, matures in 8...

A coupon bond which pays interest semi-annually has a par value of $1,000, matures in 8 years, and has a yield to maturity of 7%. If the coupon rate is 6%, the intrinsic value of the bond today will be __________ (to the nearest dollar).

A 5-year bond, pays 8% coupon rate annually, If similar bonds are currently yielding 10% annually,...

A 5-year bond, pays 8% coupon rate annually, If similar bonds are currently yielding 10% annually, what is the market value of the bond? Use the formula and semi-annual analysis.

Calculate the requested measures for bonds A and B (assume each bond pays interest Semi-Annually: Bond...

Calculate the requested measures for bonds A and B (assume each bond pays interest Semi-Annually: Bond A: Coupon: 8%, YTM: 8%, Maturity (in years): 2, Par: 100.00, Price:100.000 Bond B: Coupon: 9%, YTM: 8%, Maturity (in years): 5, Par: 100.00, Price:104.055 A.) Calculate the duration for the two bonds by changing the yield up and down 25 basis points B.) Calculate the duration for the two bonds by changing the yield up and down 10 basis points. C.) Compare Your...

(10 marks) Fortescue Ltd is offering bonds with a coupon rate of 8% p.a., paid semi-annually....

Fortescue Ltd is offering bonds with a coupon rate of 8% p.a., paid semi-annually. The par value of each bond is $1,000 and has eight (8) years to maturity. The yield to maturity is 9%. What is the value of the bond?

Consider a bond with 10,000 USD par value, 8% coupon rate paid semi annually and 10...

Consider a bond with 10,000 USD par value, 8% coupon rate paid semi annually and 10 years to maturity. Assuming a 10% required return, answer the following questions: Find the PV of the bond Find the PV of the bond given it’s a Zero-Coupon Bond. What is the bond’s price elasticity if the required return changed to 12%? Calculate the duration of the bond. What is the modified duration at an 8% yield? What is the percentage change in bond’s...

a) The ARA Corporation bonds have a coupon of 14%, pay interest semi-annually, and they will...

a) The ARA Corporation bonds have a coupon of 14%, pay interest semi-annually, and they will mature in 7 years. Your required rate of return for such an investment is 10% annually. i) How much should you pay for a $1,000 ARA Corporation bond? ii) If you are given RM90,000, how many units of bond can you purchase? iii) What is the yearly interest income for this bond if I purchase it with RM90,000? iv) You plan to reinvest the...

You own two bonds, each of which currently pays semiannual interest, has a coupon rate of...

You own two bonds, each of which currently pays semiannual interest, has a coupon rate of 6 percent, a $1,000 face value, and 6 percent yields to maturity. Bond A has 12 years to maturity and Bond B has 4 years to maturity. If the market rate of interest rises unexpectedly to 7 percent, Bond _____ will be the most volatile with a price decrease of _____ percent. A; 5.73 A; 3.44 A; 8.03 B; 7.97 B; 4.51

I have two bonds which Bond 1 pays annually and Bond 2 pays semi Annually Bond...

I have two bonds which Bond 1 pays annually and Bond 2 pays semi Annually Bond 1:YTM=3.25%,Coupon value = 5.50%,maturity in years is 22 Bond 2:YTM=5.50%,Coupon value = 5.50%,maturity in years is 4 Face value is $100 calculate the prices of 2 Bonds show formula as well

I have two bonds which Bond 1 pays annually and Bond 2 pays semi Annually( manually...

I have two bonds which Bond 1 pays annually and Bond 2 pays semi Annually( manually calculation not excell) Bond 1:YTM=3.50%,Coupon value = 5.25%,maturity in years is 20 Bond 2:YTM=5.25%,Coupon value = 3.75%,maturity in years is 6 Face value is $100 calculate the prices of 2 Bonds show formula as well

Question