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 1 year 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...

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%

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?...

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).

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=?

A bond has a par value of $1,000, a time to maturity of 20 years, and...

A bond has a par value of $1,000, a time to maturity of 20 years, and a coupon rate of 7.10% with interest paid annually. If the current market price is $710, what will be the approximate capital gain of this bond over the next year if its yield to maturity remains unchanged? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Capital gain ___$

Question