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In: Finance

We consider to purchase 5-years zero-coupon bond with the nominal value of 1000 USD and YTM...

  1. We consider to purchase 5-years zero-coupon bond with the nominal value of 1000 USD and YTM of 4 %.  We would like to invest in this bond
  1. For 3 years
  2. For 7 years

What would be your yield/loss if the day after the bond purchase

  1. YTM will increase by 1 %
  2. YTM will decrease by 1 %

Please all the explanations. Thank you

Solutions

Expert Solution

The price of the bond decreases when the YTM in the market increases. The price of the bond increases when the YTM in the market decreases. Thus the yield and price of a bond has inverse relation. Please find the pic of the excel sheet before and after the formula in this answer.

jeff jeffy answered 6 months ago
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