Answered: Percentage Bond Price @8% Price @7%…

Percentage Bond Price @8% Price @7% Change 10-year, 10% annual coupon 10-year zero 5-year zero 30-year zero $100 perpetuity

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 1Q

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

An investor purchased the following five bonds. Each bond
had a par value of $1,000 and an 8% yield to maturity on the purchase day. Immediately
after the investor purchased them, interest rates fell, and each then had a new YTM of 7%.
What is the percentage change in price for each bond after the decline in interest rates? Fill
in the following table:

Percentage
Bond
Price @8%
Price @7%
Change
10-year, 10% annual coupon
10-year zero
5-year zero
30-year zero
$100 perpetuity

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