finance data bank
Question # 00007274
Posted By:
Updated on: 01/26/2014 02:39 AM Due on: 02/28/2014
1) What is the current value of a $1000 par value 10 year bond with a 7% coupon
rate with interest paid annually if the current market interest rate is 7.75%?
2) What is the current value of a $1000 par value 10 year zero coupon bond if the
current market interest rate is 7.75%
3) What is the current value of a $1000 par value 12 year bond with a coupon rate
of 8% with semi-annual payments if the current market interest rate is 6.9%?
4) What is the current value of a 12 year bond with a coupon rate of 8% with
quarterly payments if the current market interest rate is 6.9%?
5) What is the Yield to Maturity (YTM) and Yield to Call (YTC) for a bond which
is currently priced at 1030 if the bond has a coupon of 6%, matures in 8 years but
could be called at a price of 1010 in 4 years. Interest is paid annually
6 a) Calculate the Value of the Bonds under the following assumptions:
Principal = 1000
Initial Market Interest Rate = 7%
Maturity
3 Yr
15 yr
4% coupon
Period 1
7% coupon
10% coupon
Market Interest Rate changes to 6%
3 Yr
15 yr
4% coupon
Period 2
7% coupon
10% coupon
% Change in Value from Period 1 to 2
4% coupon
7% coupon
10% coupon
6b) What do you conclude about the relative sensitivity of bond prices to changes in
interest rate?
1) Longer maturities relative to shorter maturities?
2) High coupon bonds relative to lower coupon bonds?
7a) Calculate the Macaulay Duration for a 6% bond with 5 years to maturity if the
market interest rate is 6% if interest is paid annually.
7b) What do you think will happen to the Macaulay Durationof the bond in 7a if
the market discount rate is higher?
7c) Calculate the Modified Duration of the bond.
7d) Assume that market interest rates rose from 6% to 6.1%. How much would the
price of the bond change?
1) Using the Modified Duration estimate?
2) Directly calculating the new price and comparing it with the original price
rate with interest paid annually if the current market interest rate is 7.75%?
2) What is the current value of a $1000 par value 10 year zero coupon bond if the
current market interest rate is 7.75%
3) What is the current value of a $1000 par value 12 year bond with a coupon rate
of 8% with semi-annual payments if the current market interest rate is 6.9%?
4) What is the current value of a 12 year bond with a coupon rate of 8% with
quarterly payments if the current market interest rate is 6.9%?
5) What is the Yield to Maturity (YTM) and Yield to Call (YTC) for a bond which
is currently priced at 1030 if the bond has a coupon of 6%, matures in 8 years but
could be called at a price of 1010 in 4 years. Interest is paid annually
6 a) Calculate the Value of the Bonds under the following assumptions:
Principal = 1000
Initial Market Interest Rate = 7%
Maturity
3 Yr
15 yr
4% coupon
Period 1
7% coupon
10% coupon
Market Interest Rate changes to 6%
3 Yr
15 yr
4% coupon
Period 2
7% coupon
10% coupon
% Change in Value from Period 1 to 2
4% coupon
7% coupon
10% coupon
6b) What do you conclude about the relative sensitivity of bond prices to changes in
interest rate?
1) Longer maturities relative to shorter maturities?
2) High coupon bonds relative to lower coupon bonds?
7a) Calculate the Macaulay Duration for a 6% bond with 5 years to maturity if the
market interest rate is 6% if interest is paid annually.
7b) What do you think will happen to the Macaulay Durationof the bond in 7a if
the market discount rate is higher?
7c) Calculate the Modified Duration of the bond.
7d) Assume that market interest rates rose from 6% to 6.1%. How much would the
price of the bond change?
1) Using the Modified Duration estimate?
2) Directly calculating the new price and comparing it with the original price
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Solution: finance data bank