You are considering buying a 30-year U.S. Treasury bond but are nervous about the effect on...

You are considering buying a 30-year U.S. Treasury bond but are nervous about the effect on bond price if the yield to maturity on the bond increases. The bond has a 3% coupon rate and pays coupons semi-annually. The duration is 21 years. Suppose that interest rates on this bond rise by 1.1%. Calculate the corresponding percentage change in the price of the bond using the approximation method based on bond duration. Give your answer in percent to one decimal place. If the price decreases, then include a minus sign; if the price increases, do not include any sign. Do not type the % symbol.

Expert Solution

Calculate the corresponding percentage change in the price of the bond using the approximation method based on bond duration.
=-Duration*change in yields

=-21*(1.1%)
=-23.10000%

jeff jeffy answered 2 years ago

You are considering buying a 10-year U.S. Treasury bond at the upcoming Treasury auction. Assume that...

You are considering buying a 10-year U.S. Treasury bond at the upcoming Treasury auction. Assume that the bond has the following features: coupon rate: 2.27%, with semi-annual coupon payments Face value: $1,000 matures in 10 years In the auction, the annual yield to maturity determined by the auction is 2.92%. What is the price that you will pay for this bond? Do not round at intermediate steps in your calculation. Round your answer to the nearest penny. Do NOT include...

An investor is considering the purchase of zero-coupon U.S. Treasury bonds. A 30-year zero-coupon bond yielding...

An investor is considering the purchase of zero-coupon U.S. Treasury bonds. A 30-year zero-coupon bond yielding 8% can be purchased today for $9.94. At the end of 30 years, the owner of the bond will receive $100. The yield of the bond is related to its price by the following equation: Here, P is the price of the bond, y is the yield of the bond, and t is the maturity of the bond measured in years. Evaluating this equation...

Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with a...

Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with a coupon of 3.5% if it is currently selling at par and the probability distribution of its yield to maturity a year from now is as shown in the table below. (Assume the entire 3.5% coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.) (Leave no cells blank - be certain to enter "0"...

Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with an...

Derive the probability distribution of the 1-year HPR on a 30-year U.S. Treasury bond with an 4.0% coupon if it is currently selling at par and the probability distribution of its yield to maturity a year from now is as follows: (Assume the entire 4.0% coupon is paid at the end of the year rather than every 6 months. Assume a par value of $100.) (Leave no cells blank - be certain to enter "0" wherever required. Negative values should...

Calculate the duration for a U.S. Treasury Bond issued in 2002 with an original 30-year maturity....

Calculate the duration for a U.S. Treasury Bond issued in 2002 with an original 30-year maturity. The bond has a 6% coupon rate and will mature in 2022. The bond has four more coupon payments left (assume the first of these payment is exactly six months from now). The current required return for the bond is 1.00%.

9. a. You’re considering buying a 10 year US Treasury 7% coupon bond with a face...

9. a. You’re considering buying a 10 year US Treasury 7% coupon bond with a face value of $1000. The bond pays coupons semi-annually. The next coupon will be paid in 6 months. The bond is currently selling for $977.12. Using Excel’s IRR command, determine the YTM of the bond. Express your answer as an effective annual rate (EAR). (Not at an APR). Report your answer as a decimal, not as a percent, using at least 4 significant digits....

The going yield-to-maturity on a 30 year US Treasury bond is about 1.4% (as of last...

The going yield-to-maturity on a 30 year US Treasury bond is about 1.4% (as of last Friday). Does this mean that an investor who buys this bond today will earn a rate of return of 1.4% % with certainty? Explain in detail

You consider buying a Treasury zero (a special type of zero coupon bond backed by Treasury...

You consider buying a Treasury zero (a special type of zero coupon bond backed by Treasury bonds) with a face value at maturity of $10,000. The bond matures in 8 years. Suppose that other investors currently are willing to pay $5,678 for this bond. Given this information, we can deduce the annual discount rate (assuming annual compounding) that these investors are applying to value the Treasury zero. What is this rate? Express your answer in percent to three decimal places....

You are considering buying a risky bond. The bond has a $1,000 face value, a 4-year...

You are considering buying a risky bond. The bond has a $1,000 face value, a 4-year maturity, and a coupon rate of 8%. You believe the probability the company will survive to pay off the bond is 90%. You also believe there is a 10% probability the company will default within the first 2 months, in which case you will be able to recover 35% of the bond’s face value at the end of year 4. The bond is selling...

the difference between the 30 year mortgage rate and the 30-year treasury bond rate is primary...

the difference between the 30 year mortgage rate and the 30-year treasury bond rate is primary attribute to a. interest rate risk b. reinvestment rate risk c. credit risk d. insurance risk

Question