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1. An annual bond has a face value of $1,000.00, makes an annual coupon payment of $12.00 per year, has a discount rate per year of 4.37%, and has 8 years to maturity. What is price of this bond? 2 A 4 Yar Treasu

1. An annual bond has a face value of $1,000.00, makes an annual coupon payment of $12.00 per year, has a discount rate per year of 4.37%, and has 8 years to maturity. What is price of this bond? 2 A 4 Yar Treasu

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 10P
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1. An annual bond has a face value of $1,000.00, makes an annual coupon payment of $12.00 per year, has a discount rate per year of 4.37%, and has 8 years to maturity. What is price of this bond? 2. A 4 year Treasury Bond with a face value of $1,000 and an annual coupon rate of 6.50% had a yield to maturity of 3.15%. This bond makes 2 (semiannual) coupon payments per year and thus has 8 periods until maturity. What is price of this bond based on the Effective Annual Rate (EAR) convention? What is price of this bond based on the Annual Percentage Rate (APR) convention? On the same date, the following exchanges rates were observed: $1.00 = ¥9.5350, $1.00 = €0.4206, and $1 = IDR 52.75. Under both the EAR and APR conventions, what is the price of the bond in Chinese Yuan (¥), European Euros (€), and in Indian Rupees (IDR)? 3. Perform instant experiments on whether changing various inputs causes an increase or decrease in the Bond Price and by how much. (a.) What happens when the annual coupon rate is increased? (b.) What happens when the yield to maturity is increased? (c.) What happens when the number of payments / year is increased? d.) What happens when the face value is increased? (e.) What is the relationship between the price of a par bond and time to maturity? (f.) What happens when the annual coupon rate is increased to the point that it equals the yield to maturity? What happens when it is increased further? 4. A 4 year Treasury Bond with a face value of $1,000 and an annual coupon rate of 3.20% has a yield to maturity of 2.53%. This bond makes 2 (semiannual) coupon payments per year and thus has 8 periods until maturity. What is the duration, modified duration, and convexity of this bond based on the Annual Percentage Rate (APR) convention? What is the duration, modified duration, and convexity of this bond based on the Effective Annual Rate (EAR) convention? What is the intuitive interpretation of duration?
Transcribed Image Text:1. An annual bond has a face value of $1,000.00, makes an annual coupon payment of $12.00 per year, has a discount rate per year of 4.37%, and has 8 years to maturity. What is price of this bond? 2. A 4 year Treasury Bond with a face value of $1,000 and an annual coupon rate of 6.50% had a yield to maturity of 3.15%. This bond makes 2 (semiannual) coupon payments per year and thus has 8 periods until maturity. What is price of this bond based on the Effective Annual Rate (EAR) convention? What is price of this bond based on the Annual Percentage Rate (APR) convention? On the same date, the following exchanges rates were observed: $1.00 = ¥9.5350, $1.00 = €0.4206, and $1 = IDR 52.75. Under both the EAR and APR conventions, what is the price of the bond in Chinese Yuan (¥), European Euros (€), and in Indian Rupees (IDR)? 3. Perform instant experiments on whether changing various inputs causes an increase or decrease in the Bond Price and by how much. (a.) What happens when the annual coupon rate is increased? (b.) What happens when the yield to maturity is increased? (c.) What happens when the number of payments / year is increased? d.) What happens when the face value is increased? (e.) What is the relationship between the price of a par bond and time to maturity? (f.) What happens when the annual coupon rate is increased to the point that it equals the yield to maturity? What happens when it is increased further? 4. A 4 year Treasury Bond with a face value of $1,000 and an annual coupon rate of 3.20% has a yield to maturity of 2.53%. This bond makes 2 (semiannual) coupon payments per year and thus has 8 periods until maturity. What is the duration, modified duration, and convexity of this bond based on the Annual Percentage Rate (APR) convention? What is the duration, modified duration, and convexity of this bond based on the Effective Annual Rate (EAR) convention? What is the intuitive interpretation of duration?
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