Interest rate risk is associated with the bonds price variability given a change in the interest...

Interest rate risk is associated with the bonds price variability given a change in the interest rates.

Suppose you have BOND A, which is a 30 year zero coupon bond and BOND B, which is a 5 year 10% coupon bond. If interest rates (YTM) change from 8% to 7% the bonds will increase in value. Suppose BOND A's price changes from $99.38 to 121.71 and the 5 year 10% coupon bond price changes from $1079.85 to $1123.01. Which bond has the greatest percentage increase in value? Record the percentage increase in value of the bond with the highest percentage change below. Write the increase as a decimal, so a 5% increase would be written as 0.0500.

Expert Solution

FINAL ANSWER : BOND A HAS HIGHEST % CHANGE = 0.3219.

jeff jeffy answered 1 year ago

Which of the following statements regarding risk is(are) CORRECT? I. Interest rate risk is the variability...

Which of the following statements regarding risk is(are) CORRECT? I. Interest rate risk is the variability of a security’s returns resulting from changes in interest rates. II. Inflation risk, or purchasing power risk, is the variability of security returns caused by the decline in the purchasing power of invested dollars. I only II only Both I and II Neither I nor II

Compare the interest rate risk of Bitcoin price to the interest rate risk of prices of...

Compare the interest rate risk of Bitcoin price to the interest rate risk of prices of other assets, such as bonds, stocks or properties

What is interest rate (or price) risk? Which bond has more interest rate risk: an annual...

What is interest rate (or price) risk? Which bond has more interest rate risk: an annual payment 1-year bond or a 10-year bond? Why? please explain

1.What is price risk/interest rate risk of a bond? A. The risk of a decline in...

1.What is price risk/interest rate risk of a bond? A. The risk of a decline in a bond’s price due to an decrease in interest rate B. The risk of an increase in a bond’s price due to an decrease in interest rate C. The risk of a decline in a bond’s price due to an increase in interest rate D. The risk of an increase in a bond’s price due to an increase in interest rate E. None of...

Given the following information, what is the percentage change in the price of the bonds if...

Given the following information, what is the percentage change in the price of the bonds if interest rates suddenly rise by 2%? (Please show your work as I am attempting to work out similar problems in excel.) Wing Air Inc. Coupon rate 7% Settlement date 1/1/2000 Maturity date 1/1/2002 Face value 1,000 # of coupons per year 2 Airfoil, Inc. Coupon rate 7% Settlement date 1/1/2000 Maturity date 1/1/2015 Face value 1,000 # of coupons per year 2 Change in...

Given the following information what is the percentage change in the price of the bonds if...

Given the following information what is the percentage change in the price of the bonds if interest rates suddenly rise by 3%? Wing Air Inc. Coupon rate 7% Settlement date 1/1/2000 Maturity date 1/1/2002 Face value 1,000 # of coupons per year 2 Airfoil, Inc. Coupon rate 7% Settlement date 1/1/2000 Maturity date 1/1/2015 Face value 1,000 # of coupons per year 2 Change in interest rate 3%

Describe the concepts of interest rate risk and reinvestment risk. Given these concepts of risk, what...

Describe the concepts of interest rate risk and reinvestment risk. Given these concepts of risk, what does this say about risk-free bonds?

(1) Given the following information what is the percentage change in the price of the bonds...

(1) Given the following information what is the percentage change in the price of the bonds if interest rates suddenly rise by 4%? Wing Air Inc. Coupon rate 7% Settlement date 1/1/2000 Maturity date 1/1/2002 Face value 1,000 # of coupons per year 2 Airfoil, Inc. Coupon rate 7% Settlement date 1/1/2000 Maturity date 1/1/2015 Face value 1,000 # of coupons per year 2 Change in interest rate 4% (A) Wing Air -7.01%, Airfoil -29.07% (B) Wing Air -7.0%, Airfoil...

What was the issuance price of the bonds if the market rate of Interest was 8%?

On January 1, 2016, Jason Company Issued $5 million of 10-year bonds at a 10% coupon Interest rate to be paid annually. The following present value factors have been provided:

The current stock price is $100, the exercise price is $105.1271, the risk-free interest rate is...

The current stock price is $100, the exercise price is $105.1271, the risk-free interest rate is 5 percent (continuously compounded), the volatility is 30 percent, and the time to expiration is one year (365 days). a. Using the BSM model, compute the call and put prices for a stock option. b. In the previous question (3a) you should get the same price for the call and the put, or very similar (the differences are due to the rounding of the...

Question