Question

In: Finance

Please explain in detail and not through excel, so i understand each step 2. Calculate and...

Please explain in detail and not through excel, so i understand each step

2. Calculate and plot the price of a security with the following characteristics at current market interest rates of 4%, 8% and 12%: Coupon equals 8%, maturity equals five years, face value equals $1,000. (Place price on the vertical (Y) axis and the current yield on the horizontal (X) axis.) Without doing the calculations, would the curve for a ten-year security be steeper or flatter than the one you have plotted? Why? What about a one-year security? Why?

Solutions

Expert Solution

Price of bond at each level of interest rate for five year maturity is calculated in excel and screen shot provided below:

Price of bond at each level of interest rate for ten year maturity is calculated in excel and screen shot provided below:

Graph of 10 year maturity bond is more steeper than 5 year maturity bond.


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