A bond with 5 years left to maturity, $1,000 par value and a YTM of 11%...

A bond with 5 years left to maturity, $1,000 par value and a YTM of 11% (APR, semi-annual compounding) pays an 8% coupon semi-annually. • What is the bond’s price? • What are the bond’s Macaulay and modified duration? Interpret them. • What is the the new bond price if the yield decreases by 25bp? • Recalculate the bond’s price on the basis of 10.75% YTM, and verify that the result is in agreement with your answer to the previous question.

Expert Solution

Bond Price	$886.94
Face Value	1,000
Coupon Rate	8.00%
Life in Years	5
Yield	11.00%
Frequency	2

Price: =PV(0.055,10,40,1000)
=$886.94

Period	Cash Flow	PV Cash Flow	Duration Calc
0	($886.94)
1	40.00	37.91	37.91
2	40.00	35.94	71.88
3	40.00	34.06	102.19
4	40.00	32.29	129.15
5	40.00	30.61	153.03
6	40.00	29.01	174.06
7	40.00	27.50	192.48
8	40.00	26.06	208.51
9	40.00	24.71	222.35
10	1,040.00	608.85	6,088.48

Total

7,380.04

Macaulay Duration	4.16
Modified Duration	3.94

The Macaulay duration is the weighted average term to maturity of the cash flows from a bond. For 4.16 it means weighted average maturity of bond = 4.16 years

Modified duration is change in bond price to 1 unit change in yield to maturity. Hence for 1 percentage change in YTm the bond shall change by 3.94%. the sign would be opposite i.e. for increase in yield the price shall go down and vice versa

If decrease by 0.25%, price shall be 886.94*(1+(0.0025*3.94))=895.67

Face Value	1,000
Coupon Rate	8.00%
Life in Years	5
Yield	10.75%
Frequency	2

Price = $895.73 which is very close to as caclulate dby modified duration method

jeff jeffy answered 2 years ago

A 1,000$ par value bond with five years left to maturity pays an interest payment semiannually...

A 1,000$ par value bond with five years left to maturity pays an interest payment semiannually with a 6 percent coupon rate and is priced to have a 5 percent yield to maturity. If interest rates surprisingly increase by 0.5 percent, by how much would the bond's price change ? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) Bonds price _______ by __________ ? .

"Consider the following bond: Coupon rate = 11% Maturity = 18 years Par value = $1,000...

"Consider the following bond: Coupon rate = 11% Maturity = 18 years Par value = $1,000 First par call in 13 years Only put date in five years and putable at par value Suppose that the market price for this bond is $1,169. Show that the yield to maturity for this bond is 9.077%. Show that the yield to first par call is 8.793%. Show that the yield to put is 6.942%. Suppose that the call schedule for this bond...

A bond has a $1,000 par value, 20 years to maturity, and a 5% annual coupon...

A bond has a $1,000 par value, 20 years to maturity, and a 5% annual coupon and sells for $860. What is its yield to maturity (YTM)? Round your answer to two decimal places. % Assume that the yield to maturity remains constant for the next 2 years. What will the price be 2 years from today? Do not round intermediate calculations. Round your answer to the nearest cent. $

Bond Features Maturity (years) = 5 Face Value = $1,000 YTM = 4.00% Dollar Coupon $70...

Bond Features Maturity (years) = 5 Face Value = $1,000 YTM = 4.00% Dollar Coupon $70 Coupon dates (Annual) What is the Coupon Rate on the above bond ? Group of answer choices 4.00% 6.16% 7.00% 6.18% 6.24%

Find the value of a bond maturing in 11 years, with a $1,000 par value and...

Find the value of a bond maturing in 11 years, with a $1,000 par value and a coupon interest rate of 12% (6% paid semiannually) if the required return on similar-risk bonds is 17% annual interest (8.5% paid semiannually).

A Treasury bond with $1,000 maturity value has a $70 annual coupon and 5 years left...

A Treasury bond with $1,000 maturity value has a $70 annual coupon and 5 years left to maturity. What price will the bond sell for assuming that the 5-year yield to maturity in the market is 4%, 7% and 10% respectively. (Show your calculations) What would be you answer to part (i) if the bond had 8 years to maturity? (Show your calculations) What would be your answer to part (i) if the bond had only 10 years to maturity?...

Seether Co. has bonds with 18 years to maturity, a par value of $1,000, a YTM...

Seether Co. has bonds with 18 years to maturity, a par value of $1,000, a YTM of 6.4 percent, ,and a current price of $1,306.50. The bonds make semiannual payments. What is the coupon rate be on these bonds?

A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid annually....

A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid annually. What is the value of the bond if your required rate of return is 5%? 2. A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid semi-annually. What is the value of the bond if your required rate of return is 5%? 3. A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid semi-annually. What...

1. A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid...

1. A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid annually. What is the value of the bond if your required rate of return is 5%? 2. A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid semi-annually. What is the value of the bond if your required rate of return is 5%? 3. A $1,000 par-value bond with 5 years of maturity pays a 5% coupon rate, paid...

A bond has a par value of $1,000, a time to maturity of 10 years, and...

A bond has a par value of $1,000, a time to maturity of 10 years, and a coupon rate of 8.20% with interest paid annually. If the current market price is $820, what will be the approximate capital gain of this bond over the next year if its yield to maturity remains unchanged? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Capital Gain=?

Question