Illustrate your answers by graphing bond prices versus time to LO 2 19. Interest Rate Risk Both Bond Bill and Bond Ted have 5.8 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 5 years to maturity, whereas Bond Ted has 25 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Bill? Of Bond Ted? Both bonds have a par value of $1,000. If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Bill be then? Of Bond Ted? Illustrate your answers by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of longer-term bonds?

Illustrate your answers by graphing bond prices versus time to LO 2 19. Interest Rate Risk Both Bond Bill and Bond Ted have 5.8 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 5 years to maturity, whereas Bond Ted has 25 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Bill? Of Bond Ted? Both bonds have a par value of $1,000. If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Bill be then? Of Bond Ted? Illustrate your answers by graphing bond prices versus YTM. What does this problem tell you about the interest rate risk of longer-term bonds?

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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1. Exploring Finance: Coupon Bonds. This graph shows the value of 10% coupon bonds of different terms across differing market interest rates. Each bond pays INT = $100 at the end of each year and returns M = $1,000 at maturity. For comparison, the blue line depicts the value of a one-year bond. The term of the other bond in years may be changed using the slider. Drag on the graph to change the current market interest rate (rd) at which the bond (orange curve) is evaluated. 1. What is the value of a 15-year 10% $1,000 coupon bond when the market interest rate is 15%? $421 $708 $1,000 $1,519 2. What is the value of a 12-year 10% $1,000 bond when the market interest rate is 5%? $1,000 $1,050 $1,443 $2,200 here is the reference,
(Interest Rate risk) Bond S has 4 years to maturity. Bond T has 30 years to maturity. Both have 9% coupons paid semi-annually, and are priced at par value. If the interest rate(yield to maturity) suddenly drops by 3.8%, the percentage change in the price of Bond T is ____________% (Round your answer to a two-decimal number.) (Interest Rate risk) Bond S has 4 years to maturity. Bond T has 30 years to maturity. Both have 9% coupons paid semi-annually, and are priced at par value. If the interest rate(yield to maturity) suddenly rises by 3.1%, the percentage change in the price of Bond S is ____________% (Keep two decimal numbers and the sign.)
Bond J has a coupon rate of 3 percent. Bond K has a coupon rate of 9 percent. Both bonds have 18 years to maturity, make semiannual payments, and have a face value of $1000 and a YTM of 6 percent. a. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? What if rates suddenly fall by 2 percent instead? (Hint: % price change = 100% * (new price - old price)/old price) b. What does this problem tell you about the interest rate risk of lower coupon bonds? -
Consider the following pure discount bonds with face value $1,000: Maturity Price 1 952.38 2 898.47 3 847.62 4 799.64 5 754.38 Suppose now that the current one-period interest rate is 5% and that the markets expects future one period interest rates to decline by %0.5 per year.(a). Assume first that the liquidity premium is constant at 1%. Draw a graph with the spot yield curve, the forward rates curve and a curve showing expected future one-period interest rates.(b). Assume next that the liquidity premium increases by 0.5% per year from initially being 1%. Draw a graph with the spot yield curve, the forward rates curve and a curve showing expected future one-period interest rates.
Please only use 1 excel formula/cell to solve the the following question: Bond J has a coupon rate of 3%. Bond K has a coupon rate of 9%. Both bonds have 19 years to maturity, make semiannual payments, and have a YTM of 6%. If interest rates suddenly rise by 2%, what is the percentage price change of these bonds? What if rates suddenly fall by 2% instead? All bond price answers should be dollar prices. Bond J: Coupon Rate 3% Settlement Date 1/1/2000 Maturity Date 1/1/2019 Redemption (% of par) 100 Number of Coupons Per Year 2 Bond K: Coupon Rate 9% Settlement Date 1/1/2000 Maturity Date 1/1/2019 Redemption (% of par) 100 Number of Coupons Per Year 2 Par Value for Both Bonds $1,000 Current YTM 6% New YTM 8% New YTM 4%
(Interest Rate risk) Bond S has 4 years to maturity. Bond T has 30 years to maturity. Both have 9% coupons paid semi-annually, and are priced at par value. If the interest rate(yield to maturity) suddenly drops by 3.8%, the percentage change in the price of Bond T is ____________% (Round your answer to a two-decimal number.)
Lantech investor is deciding between two bonds: Bond A pay $72 annual interest and has a market value of $925. It has 10 years to maturity. Bond B pays $62 annual interest and has a market value of $910. It has two years to maturity. Par value of the bonds is $1,000. A. What is the current yield on both bonds? B. Which bond should be chosen and why? C. A drawback of current yield is that is doesn't consider the total life of the bond. E.g. Yield to maturity on Bond A is 8.33 percent. What is the yield to maturity on Bond B? D. Is your answer changed from parts B and C based on which bond should be chosen?
Both Bond Bill and Bond Ted have 10.6 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 6 years to maturity, whereas Bond Ted has 23 years to maturity. Both bonds have a par value of 1,000. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of these bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Bond J has a coupon rate of 4.2 percent. Bond K has a coupon rate of 14.2 percent. Both bonds have ten years to maturity, a par value of $1,000, and a YTM of 9.4 percent, and both make semiannual payments. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. If interest rates suddenly fall by 2 percent instead, what is the percentage change in the price of these bonds? Note: Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. a. Percentage change in price b. Percentage change in price Bond J 9.40 % % Bond K 12.83 %
Bond J has a coupon rate of 4%. Bond K has a coupon rate of 14%. Both bonds have 17 years to maturity, a par value of $1000 and a yield to maturity of 8% , and both make semi annual payments. If interest rates suddenly rise by 2%, what is the percentage price change in these bonds? What if rates suddenly fall by 2% instead? What does this problem tell you about interest rate risk of lower coupon bonds? Excel would be good. Thanks.
Both Bond Bill and Bond Ted have 10.2 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 4 years to maturity, whereas Bond Ted has 21 years to maturity. Both bonds have a par value of 1,000. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of these bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Percentage change in price b. Percentage change in price Bond Bill % % Bond Ted % %
Both Bond Bill and Bond Ted have 9.4 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 5 years to maturity, whereas Bond Ted has 22 years to maturity. Both bonds have a par value of 1,000. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of these bonds? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Bond Bill Bond ted a percentage in change b percentage in change

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