Consider the following bonds: (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) I 12 a. What is the percentage change in the price of each bond if its yield to maturity falls from 8% to 7%? b. Which of the bonds A through D is the most sensitive to a 1% drop in interest rates from 8% to 7% and why? Which bond is the least sensitive? Provide an intuitive explanation for your answer. Note: Assume annual compounding. Bond A B C D Coupon Rate (annual payments) 0% 0% 2% 8% ... a. What is the percentage change in the price of each bond if its yield to maturity falls from 8% to 7%? The percentage change in bond A is 5.47%. (Round to two decimal places.)

Consider the following bonds: (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) I 12 a. What is the percentage change in the price of each bond if its yield to maturity falls from 8% to 7%? b. Which of the bonds A through D is the most sensitive to a 1% drop in interest rates from 8% to 7% and why? Which bond is the least sensitive? Provide an intuitive explanation for your answer. Note: Assume annual compounding. Bond A B C D Coupon Rate (annual payments) 0% 0% 2% 8% ... a. What is the percentage change in the price of each bond if its yield to maturity falls from 8% to 7%? The percentage change in bond A is 5.47%. (Round to two decimal places.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Which type of bonds will have more volatile prices and returns? A. 30-year Treasuries B. 10-year Treasuries
Consider the following two Treasury securities: Bond Price Modified duration (years) A $100 6 B $80 7 For a 25 basis-point change in interest rates, which bond has the greatest percentage change in price? A. Bond A B. Bond B C. Can't be determined
Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds over years 2, 3 and 4 are as follows: 1R1 = 4.80%, E(2r1) = 5.45%, E(3r1) = 5.95%, E(4r1) = 6.10% Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for the four-year-maturity government bond? 5.57% 5.62% 5.83% 6.10%
Please answer 6D.
Suppose that you have invested in a Treasury bond with a term-to-maturity of 8 years. What will happen to the duration of your bond if interest rates increase by 2 percentage points? Group of answer choices The duration will increase The duration will decrease The duration won't change Not enough information
4. Given the expectations theory as the correct interpretation of the term structure, calculate and depict the yield curves for the provided series of one-year interest rates: 5%, 7%, 7%, 7%, 7% 5%, 4%, 4%, 4%, 4% a. b. How would your yield curves change if people preferred shorter-term bonds over longer- term bonds? Solution:
The following table summarizes prices of various default-free zero-coupon bonds ( $100 face value): Maturity (years) 1 2 3 4 5 {:[" Price (per "$100],[" face value) "]:} $96.33 $91.98 $87.41 $82.53 $77.41 a. Compute the yield to maturity for each bond. b. Plot the zero-coupon yield curve (for the first five years). c. Is the yield curve upward-sloping, downward-sloping, or flat? Note: Assume annual compounding. a. Compute the yield to maturity for each bond. The yield on the 1-year bond is %. (Round to two decimal places.) The yield on the 2-year bond is %. (Round to two decimal places.) The yield on the 3-year bond is %. (Round to two decimal places.) The yield on the 4-year bond is enter your response here%. (Round to two decimal places.) Part 5 The yield on the 5-year bond is enter your response here%. (Round to two decimal places.) Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will…
Please answer both parts
Suppose the term structure of interest rate is flat. Consider the following four bonds: Bond Term to Maturity (year) Coupon rate YTM 1 5 10% 7% 2 3 7 7 10% O a. 2,3,4,1 O b. 2,1,4,3 O c. 1,2,3,4 O d. 4,3,2,1 3% 3% 7% 4 7 If the yield-to-maturity for all bonds changes by 1%, rank the bonds from the lowest percentage change in price to the largest percentage change in price based on duration approximation. 7% 5%
Consider the following: Price Yield to maturity Periods to maturity Modified duration Fixed-rate Bond Fixed-rate Note 107.18 5.00% 18 6.9848 100.00 5.00% 8 3.5851 a. For an increase in interest rates of 100 basis points, determine the change in value for the fixed-rate note. Show your work. b. For an increase in interest rates of 100 basis points, determine the change in value for the fixed-rate bond. Show your work. c. Which of the two fixed-rate securities are more sensitive to increases interest rates? Why? d. What would be the most appropriate course of action to take given interest rates are expected to rise? Explain carefully.
10) Suppose a coupon bond with 10 years remaining to maturity is reported to have a duration equal to 6.7 years. Assuming a current interest rate of 9% and an estimated decrease in the interest rate to 8.8%, calculate the estimated percentage increase in the bond's price. Hint: Duration= a) 3.3% b) 2.7% c) 1.2% d) 0.6% %AP Ai/(1+io)
(i) Two types of risks faced by bodholders are interest rate risks and default risks? What are interest rate risks and default risks, and why might a bond exhibit more or less of these risks? (ii) You see a bond with the following characteristics: bond matures in 10 years coupon rate = 7% APR compounded semi-annually, paid semi-annually face value = $1000 bond price = $900 What is the yield to maturity (YTM) of this bond, stated as an APR with semi-annual compounding?

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