Question

In: Finance

Consider a bond with semiannual payments with 10 years to maturity, coupon of 10%, 8% as...

Consider a bond with semiannual payments with 10 years to maturity, coupon of 10%, 8% as Yield to Maturity (YTM),and  face value of 1000,

a. Find the price of the bond at t=0.

b. Interest rates drop by 1% after 1 year. Find the new Price of the bond.

c. Interest rates drop to 0% after two years from time 0. Find the new price.

d. Interest rates turn negative to -5% after 3 years from t= 0. Find the new price of the bond.

Solutions

Expert Solution


Related Solutions

i) Consider a semiannual bond with an 8% coupon and with yield to maturity 10%. If...
i) Consider a semiannual bond with an 8% coupon and with yield to maturity 10%. If the bond’s YTM remains constant, then in one year, will the bond price be higher, lower, of unchanged? Why? ii) Brothers Corp expects to earn $6 per share next year. The firm’s ROE is 15% and its plowback ratio is 50%. If the firm’s market capitalization rate is 13%, what is the present value of its growth opportunities? iii) Finance Corporation’s free cash flow...
A bond outstanding with 10 years to maturity, an 9.25% nominal coupon, semiannual payments, and a...
A bond outstanding with 10 years to maturity, an 9.25% nominal coupon, semiannual payments, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 4.5 years at a price of $1,100. What is the bond's nominal yield to call?
A bond has a coupon rate of 8 percent, 7 years to maturity, semiannual interest payments,...
A bond has a coupon rate of 8 percent, 7 years to maturity, semiannual interest payments, and a YTM of 7 percent. If interest rates suddenly rise by 1.5 percent, what will be the percentage change in the bond price?
A bond has a coupon rate of 8 percent, 7 years to maturity, semiannual interest payments,...
A bond has a coupon rate of 8 percent, 7 years to maturity, semiannual interest payments, and a YTM of 7 percent. If interest rates suddenly rise by 1.5 percent, what will be the percentage change in the bond price? Use Excel
Consider a 8% coupon bond making annual coupon payments with 4 years until maturity and a...
Consider a 8% coupon bond making annual coupon payments with 4 years until maturity and a yield to maturity of 10%. What is the modified duration of this bond? If the market yield increases by 75 basis points, what is the actual percentage change in the bond’s price? [Actual, not approximation] Given that this bond’s convexity is 14.13, what price would you predict using the duration-with-convexity approximation for this bond at this new yield? What is the percentage error?
Consider a 8% coupon bond making annual coupon payments with 4 years until maturity and a...
Consider a 8% coupon bond making annual coupon payments with 4 years until maturity and a yield to maturity of 10%. What is the modified duration of this bond? If the market yield increases by 75 basis points, what is the actual percentage change in the bond’s price? [Actual, not approximation] Given that this bond’s convexity is 14.13, what price would you predict using the duration-with-convexity approximation for this bond at this new yield? What is the percentage error? Please...
8. a) Consider Bond C – a 4% coupon bond that has 10 years to maturity....
8. a) Consider Bond C – a 4% coupon bond that has 10 years to maturity. It makes semi-annual payments and has a YTM of 7%. If interest rates suddenly drop by 2%, what is the percentage change of the bond? What does this problem tell you about the relationship between interest rate and bond price? b) Consider another bond – Bond D, which is a 10% coupon bond. Similar to Bond C, it has 10 years to maturity. It...
A 25-year maturity, 9% coupon bond with semiannual coupon payments is callable in five years at...
A 25-year maturity, 9% coupon bond with semiannual coupon payments is callable in five years at a call premium of 10%. The current yield to maturity is 7%. What is the yield to call?
Consider a bond with a 10% coupon and with yield to maturity = 8%. If the...
Consider a bond with a 10% coupon and with yield to maturity = 8%. If the bond’s YTM remains constant, then in one year, will the bond price be higher, lower, or unchanged? Please explain your answer and give examples to help demonstrate your explanation.
Bond A has the following: 20 years left to maturity 7.5% Coupon Rate Semiannual payments Bond...
Bond A has the following: 20 years left to maturity 7.5% Coupon Rate Semiannual payments Bond B has the following: 5 years left till maturity 7.5% Coupon Rate ​​​​​​​Semiannual payments Both bonds are similar to each other in all other features and risk. If the current market rate of interest suddenly drops from 7% to 5%, which of these bonds will change more in value? Please show calculations of each bond valuation at 7% as well as 5% and compute...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT