A corporate bond has 2 years to maturity, a coupon rate of 6%, a face value...

A corporate bond has 2 years to maturity, a coupon rate of 6%, a face value of $1,000 and pays coupons semiannually. The market interest rate for similar bonds is 7.5%.

What is the price of the bond (in $)?

What is the bond's duration in years?

If yields fall by 0.8 percentage points, what is the new expected bond price based on its duration (in $)?

What is the actual bond price after the change in yields (in $)?

What is the difference between the two new bond prices (in absolute $)?

Solutions

Expert Solution

Duration measured in years, which says how long it will be before a bond’s purchase price repaid in present value money.

Modified Duration is a measure of volatility of Bond, In other words, modified duration is a measure of % change in bond price for every 1% change in market interest rate.

Please refer to below spreadsheet for calculation and answers. Cell reference also provided.

Formula reference -

Please note- figures are rounded up to 4 decimals.

Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.

jeff jeffy answered 8 months ago

Next > < Previous

Related Solutions

A bond has years to maturity, a coupon rate of 6.7% , and a face value...

A bond has years to maturity, a coupon rate of 6.7% , and a face value of $1000. The yield to maturity is 14%. Assume annual compounding. What is the current price of the bond, the coupon yield, and the capital gain yield? Also, what will be the price of the bond when it has 4 years to maturity (one year from today) and what is the percentage increase/decrease in price during the year? (Note: use negative signs to indicate...

Bond A has a face value of $5,000, a coupon rate of 2%, and a maturity...

Bond A has a face value of $5,000, a coupon rate of 2%, and a maturity date of five years. Bond B has a face value of $4,000, a coupon rate of 10%, and a maturity date of 10 years. Bond C has a face value of $4,500, a coupon rate of 3%, and a maturity date of four years. If these bonds are being sold for $6,300 each, which should you buy? Assume that the prevailing interest rate is...

A bond with a 2-year maturity has a coupon rate of 1% and a face value...

A bond with a 2-year maturity has a coupon rate of 1% and a face value of $1,000. The coupons are paid annually and the next coupon is due in one year. The bond’s yield to maturity is 1%. What is this bond’s Modified Duration?

A 30-year corporate bond has a face value of $1,000 and a coupon rate of 6%...

A 30-year corporate bond has a face value of $1,000 and a coupon rate of 6% paid annually. At the end of year 12 the Yield to Maturity is 8%. a. How much money will the holder of the bond receive at the end of year 30? b. What is the bond’s price at the end of year 12? c. What will the bond’s interest payment be at the end of year 12? d. If the Yield to Maturity later...

Consider a corporate bond with a face value of $1,000, 2 years to maturity and a...

Consider a corporate bond with a face value of $1,000, 2 years to maturity and a coupon rate of 4%. Coupons are paid semi-annually. The next coupon payment is to be made exactly 6 months from today. What is this bond's price assuming the following spot rate curve. 6-month spot rate: 3.2%. 12-month: 5%. 18-month: 5.5%. 24-month: 5.8%.

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)

A bond with three years to maturity has a face value of $1000 and a coupon...

A bond with three years to maturity has a face value of $1000 and a coupon rate of 3%. It is initially bought at a yield to maturity of 7% then sold after one year when market yields have fallen to 3%. What is the rate of return for the first year?

A corporate bond has a face value of $1,000 and a coupon rate of 5%. The...

A corporate bond has a face value of $1,000 and a coupon rate of 5%. The bond matures in 15 years and has a current market price of $950. If the corporation sells more bonds it will incur flotation costs of $25 per bond. If the corporate tax rate is 35%, what is the after-tax cost of debt capital? please show all steps in the calculation.

A bond has 15 years to maturity and an annual coupon of 12%. The face value...

A bond has 15 years to maturity and an annual coupon of 12%. The face value of the bond is $1,000 and coupon payments are made semiannually. The bond is currently trading in the market at $880. What can you say about the YTM on this bond? Answer provided: The YTM is greater than 12% Why, what is the formula or rule behind this answer?

Subjects