Interest rate sensitivity An investor purchased the following 5 bonds. Each bond
ID: 2613086 • Letter: I
Question
Interest rate sensitivity
An investor purchased the following 5 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 6%. What is the percentage change in price for each bond after the decline in interest rates? Fill in the following table. Round your answers to the nearest cent or to two decimal places.
Price @ 8% Price @ 6% Percentage Change 10-year, 10% annual coupon $ $ % 10-year zero $ $ % 5-year zero $ $ % 30-year zero $ $ % $100 perpetuity $ $ %Explanation / Answer
Price is the present value of cash receivable in future
10 year 10% annual coupon it meance bond having coupon interest rate of 10% of face value and payable annually.
price at the rate of 8%=cumulative discount facor for 10 years*100+5th year discount factor*1000
it is assumed that bond is redeemable at par.
Price 8% Price 6% % Change 10-year, 10% annual coupon $ 1133.90 $ 1293.90 14.11 % 10-year zero $ 463 $ 558 20.52% 5-year zero $ 681 $ 747 9.69% 30-year zero $ 99.38 $ 174.11 75.2% $100 perpetuity $ 1250 $ 1666.67 33.33%Related Questions
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