Question

18.Rank the following bonds, from highest to lowest interest rate risk: 2-year zero coupon, 2-year 5% coupon bond, 30-year 5% coupon bond, 30-year, zero coupon bond.

A.30-year zero coupon bond, 30-year 5% coupon bond, 2-year 5% coupon bond, 2-year zero coupon bond

B.30-year zero coupon bond, 30-year 5% coupon bond, 2-year zero coupon bond, 2-year 5% coupon bond

C.30-year 5% coupon bond, 30-year zero coupon bond, 2-year 5% coupon bond, 2-year zero coupon bond

D.2-year 5% coupon bond, 2-year zero coupon bond, 30-year 5% coupon bond, 30-year zero coupon bond

E.2-year zero coupon bond, 2-year 5% coupon bond, 30-year 5% coupon bond, 30-year zero coupon bond

19.A corporate bond with a 5.75 percent coupon has 15 years left to maturity. It has had a credit rating of BB and a yield to maturity of 6.25 percent. The firm has recently gotten more financially stable and the rating agency is upgrading the bonds to BBB. Thenew appropriate discount rate will be 6.00 percent. What will be the change in the bond's price in dollars? (Assume interest payments are paid semi-annually and a par value of $1,000.)

A.increase $28.75

B.decrease $22.25

C.increase $22.25

D.decrease $23.72

E.increase $23.72

20.A 6.00percent coupon bond with 12 years left to maturity is priced to offer a 6.50percent yield to maturity. You believe that in one year, the yield to maturity will be 6.25 percent. What is the change in price the bondwill experience in dollars? (Assume semi-annual interest payments and $1,000 par value.)A.$12.50B.$19.67C.$20.22D.$21.55E.$25.00

Answer 1