A. Bond Features Maturity (years) = 7 Face Value = $1,000 Starting Interest Rate 4.28% Coupon...

A.

Bond Features
Maturity (years) =	7
Face Value =	$1,000
Starting Interest Rate	4.28%
Coupon Rate =	4%
Coupon dates (Annual)

If interest rates change from 4.28% to 6.45% immediately after you buy the bond today (and stay at the new interest rate), what is the price effect in year 2 ?

State your answer to the nearest penny (e.g., 48.45)

If there is a loss, state your answer with a negative sign (e.g., -52.30)

B.

Assume you buy a bond with the following features

Bond maturity = 4
Coupon Rate = 5%
Face Value = $1,000
Annual Coupons

When you buy the bond the market interest rate = 4.24%
Immediately after you buy the bond the interest rate changes to 7.15%
What is the "reinvestment" effect in year 3 ?

Expert Solution

Q#A:

Total term is 7 years. In year 2, remaining term to maturity is 5 years

Price effect in year 4= -85.32 (loss)

Calculations as below:

Q#B:

Reinvestment effect= $4.53

Calculations as below:

jeff jeffy answered 2 years ago

Bond Features Maturity (years) = 7 Face Value = $1,000 Starting Interest Rate 4.78% Coupon Rate...

Bond Features Maturity (years) = 7 Face Value = $1,000 Starting Interest Rate 4.78% Coupon Rate = 4% Coupon dates (Annual) If interest rates change from 4.78% to 5.02% immediately after you buy the bond today (and stay at the new interest rate), what is the price effect in year 5 ? State your answer to the nearest penny (e.g., 48.45) If there is a loss, state your answer with a negative sign (e.g., -52.30)

Bond Features Maturity (years) = 6 Face Value = $1,000 Starting Interest Rate 3.83% Coupon Rate...

Bond Features Maturity (years) = 6 Face Value = $1,000 Starting Interest Rate 3.83% Coupon Rate = 4% Coupon dates (Annual) If interest rates change from 3.83% to 6.63% immediately after you buy the bond today (and stay at the new interest rate), what is the price effect in year 4 ? State your answer to the nearest penny (e.g., 48.45) If there is a loss, state your answer with a negative sign (e.g., -52.30)

Bond Features Maturity (years) = 6 Face Value = $1,000 Starting Interest Rate 3.28% Coupon Rate...

Bond Features Maturity (years) = 6 Face Value = $1,000 Starting Interest Rate 3.28% Coupon Rate = 5% Coupon dates (Annual) If interest rates change from 3.28% to 5.61% immediately after you buy the bond today (and stay at the new interest rate), what is the price effect in year 4 ? State your answer to the nearest penny (e.g., 48.45) If there is a loss, state your answer with a negative sign (e.g., -52.30)

1. Bond Features Maturity (years) = 9 Face Value = $1,000 Starting Interest Rate 4.89% Coupon...

1. Bond Features Maturity (years) = 9 Face Value = $1,000 Starting Interest Rate 4.89% Coupon Rate = 3% Coupon dates (Annual) If interest rates change from 4.89% to 5.48% immediately after you buy the bond today (and stay at the new interest rate), what is the price effect in year 5 ? State your answer to the nearest penny (e.g., 48.45) If there is a loss, state your answer with a negative sign (e.g., -52.30) 2. Bond Features Maturity...

Bond Features Maturity (years) 5 Face Value = $1,000 Coupon Rate = 7.00% Coupon dates (Annual)...

Bond Features Maturity (years) 5 Face Value = $1,000 Coupon Rate = 7.00% Coupon dates (Annual) Market interest rate today 7.00% Time to call (years) 3 Price if Called $1,070.00 Market interest rate in Year 3 5.00% The above bond is callable in 3 years. When the bond is issued today, interest rates are 7.00% . In 3 years, the market interest rate is 5.00% . Should the firm call back the bonds in year 3 and if so, how...

LO3A Bond Features Maturity (years) 5 Face Value = $1,000 Coupon Rate = 3.00% Coupon dates...

LO3A Bond Features Maturity (years) 5 Face Value = $1,000 Coupon Rate = 3.00% Coupon dates (Annual) Market interest rate today 3.00% Time to call (years) 3 Price if Called $1,030.00 Market interest rate in Year 3 1.00% The above bond is callable in 3 years. When the bond is issued today, interest rates are 3.00% . In 3 years, the market interest rate is 1.00% . Should the firm call back the bonds in year 3 and if so,...

Bond A has the following features: Face value = $1,000, Coupon Rate = 5%, Maturity...

Bond A has the following features: Face value = $1,000, Coupon Rate = 5%, Maturity = 9 years, Yearly coupons The market interest rate is 6.15% What is the current yield for bond A from today to year 1? Calculate your answer to 2 decimal places (e.g., 5.23)

A. Bond A has the following features: Face value = $1,000, Coupon Rate = 4%, Maturity...

A. Bond A has the following features: Face value = $1,000, Coupon Rate = 4%, Maturity = 6 years, Yearly coupons The market interest rate is 4.05% If interest rates remain at 4.05%, what will the price of bond A be in year 1? B.Bond B has the following features: Face value = $1,000, Coupon Rate = 4%, Maturity = 4 years, Yearly coupons The market interest rate is 5.04% If interest rates remain at 5.04%, what is...

Bond A has the following features: Face value = $1,000, Coupon Rate = 9%, Maturity...

Bond A has the following features: Face value = $1,000, Coupon Rate = 9%, Maturity = 6 years, Yearly coupons The market interest rate is 4.47% If interest rates remain at 4.47%, what is the percentage capital gain or loss on bond A if you sell the bond in year 1? State your answer to 2 decimal places (e.g., 3.56, 0.29) If there is a capital loss make sure to include a negative sign in your answer (e.g.,...

2. Consider a bond with the following features: Maturity = 7 years Face value = $1,000...

2. Consider a bond with the following features: Maturity = 7 years Face value = $1,000 Coupon rate = 4% Semiannual coupons Price = $993 What is this bond's YTM stated as an annual rate? A 3.2500% B 4.1161% C 2.0581% D 6.500% 3. Maturity (years) = 5 Face Value = $1,000 Coupon Rate = 3.00% Price = $900 Coupon (Annual) What is the YTM (annual) of the above bond? A 5.38% B 5.30% C 5.33% D 4.80% E 5.36%...

Question