Question
In: Finance
You buy a 30-year zero coupon bond with a face value of $1000 and a 4%...
You buy a 30-year zero coupon bond with a face value of $1000 and a 4% interest rate, compounded semi-annually. The moment after you buy the bond, the interest rate falls to 3%, compounded semi-annually. What is the percent change in the bond price? Note: the sign is important!
Solutions
Expert Solution
| Par/Face value | 1000 | ||||||||||||||
| Annual Coupon rate | 0 | ||||||||||||||
| Annual coupon | 0 | ||||||||||||||
| semi-annual coupon | 0 | ||||||||||||||
| Present Value = Future value/[(1+(r/m))^mt] | |||||||||||||||
| r is the interest rate that is 4%. | |||||||||||||||
| m is the compounding period that is 2 | |||||||||||||||
| mt is the time period. | |||||||||||||||
| price of the bond = sum of present values of future cash flows | |||||||||||||||
| r/2 | 0.02 | ||||||||||||||
| mt | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 60 |
| future cash flow | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 1000 |
| present value | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 304.7823 |
| sum of present values | 304.78 | ||||||||||||||
| The price of the bond when the interest rate is 4% is $304.78. | |||||||||||||||
| Par/Face value | 1000 | ||||||||||||||
| Annual Coupon rate | 0 | ||||||||||||||
| Annual coupon | 0 | ||||||||||||||
| semi-annual coupon | 0 | ||||||||||||||
| Present Value = Future value/[(1+(r/m))^mt] | |||||||||||||||
| r is the interest rate that is 3%. | |||||||||||||||
| m is the compounding period that is 2 | |||||||||||||||
| mt is the time period. | |||||||||||||||
| price of the bond = sum of present values of future cash flows | |||||||||||||||
| r/2 | 0.015 | ||||||||||||||
| mt | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 60 |
| future cash flow | 0 | 0 |
 jeff jeffy answered 2 years agoRelated Solutions"Suppose you buy a 30 year zero coupon bond with a face value of $1000 and..."Suppose you buy a 30 year zero coupon bond with a face value of
$1000 and a 4% annual interest rate, compounded semi-annually. 1
minute after you buy the bond, the interest rate on this bond falls
to 3%, compounded semi-annually. What is the percent change in the
bond price?
8.You buy a 30 year zero coupon bond which will pay you $1000 in 30 years...8.You buy a 30 year zero coupon bond which will pay you $1000 in
30 years at an annual yield of ?? = 6% compounded once per year. A
few minutes later the annual yield rises to ?? = 7% compounded once
per year. What is the percent change in the value of the bond?
(Hint: the answer should be
negative.)
9.You buy a 30 year zero coupon bond
which will pay you $1000 in 30 years at an annual...
What is the quote of a 5 year, zero coupon bond with $1000 face value if...
What is the quote of a 5 year, zero coupon bond with $1000 face
value if the yield to maturity is 2.6% (semiannual compounding)?
Round to 3 decimal places
A zero-coupon bond with $1000 face value has 10-year to maturity. If this bond is currently...A zero-coupon bond with $1000 face value has 10-year to
maturity. If this bond is currently trading at $463.20. What is
this bond’s YTM (i.e., required rate of return)?
What is the coupon rate for a bond with three
years until maturity, a price of $953.46, and a yield to maturity
of 6%? Assume the bond’s face value is $1,000.
Kodak has a bond with 10 year until maturity, a coupon rate of
10%, and selling for $1,200. This bond...
What is the duration of a 4 year coupon bond with a face value of $1000,...What is the duration of a 4 year coupon bond with a face value
of $1000, a coupon rate of 8% and interest rate is 10%?
A) 3.12
B) 3.56
C) 3.48
D) 3. 89
One-year zero coupon bond with a face value of $1000 is sellingat $981. What is...One-year zero coupon bond with a face value of $1000 is selling
at $981. What is the yield to maturity of this bond? State the
answer as a number with 2 decimals without % sign. For example,
5.55 is a correct answer, while 5.55% or 0.055 are not correct.
If a 30 year bond with a face value of 1000 anda 5% coupon rate is...If
a 30 year bond with a face value of 1000 anda 5% coupon rate is
selling for $947.51, which of the following could be the yield to
maturity?
Assume a one year bond with a par value of $1000 and a coupon
rate of 5%. What is the price if the current interest rate is
5%?
Assume a 7-year zero coupon bond with $1000 face value with a yield of 7% (continuously...Assume a 7-year zero coupon bond with $1000 face value with a
yield of 7% (continuously compounding). Wherever applicable, use e
= 2.71828.
• What is the price of the bond?
• Use the duration to calculate the effect on the bond’s price
of a 0.5% decrease on its yield.
• Recalculate the bond’s price on the basis of a 6.5% per annum
yield and verify that your result in (b) is a good approximation of
the change in the...
You have purchased a bond with 18 year maturity, 4% coupon rate, $1000 face value, and...You have purchased a bond with 18 year maturity, 4% coupon rate,
$1000 face value, and semi-annual payments for $927.09.
Two years later, when the YTM=3.8%, you sell the bond.
What was your average annual realized yield on the bond, if you
were able to reinvest coupons at 3%? [Provide your answer in
percent rounded to two decimals, omitting the % sign.]
1. You have a zero coupon bond with ten years until maturity with $1000 face value....1. You have a zero coupon bond with ten years until maturity
with $1000 face value. Yield to maturity is 5%. What is the
duration of the bond? Show all calculations.
2. You have a 2% bond paying annual coupons, 3 years until
maturity with $1000 face value. Yield to maturity is 2.5%. What is
the duration of the bond? Show all calculations.
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
ADVERTISEMENT
|