Using excel, find the price of a 20-year $2000 par bond with 6% annual coupons for...

Using excel, find the price of a 20-year $2000 par bond with 6% annual coupons for yield rates starting at 0 and increasing by .001 (.1%) until .15 (15%). Graph the bond prices (price on the y-axis and yield on the x-axis). Answer the following questions:

Describe your graph. What happens to bond prices when rates increase?
At what rate does the bond sell for par? (When is the price $2000)?
At what rates is the bond selling for a discount? Why is this happening?
At what rates is the bond selling at a premium? Why is this happening?

Expert Solution

When Yield rate increases, the price of the bond decreases

The bond sells at par at a yield of 6%, which is the same as the coupon rate

The bond starts selling at a discount from 6.1% onwards. This happens because the coupon is lower than the rate.

The bond will sell at a premium at rates lower than 6%. This happens because the yield will be lower than the coupon

jeff jeffy answered 1 year ago

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