: HW7 ctor Problem 7.07 Click here to read the eBook: Bond Valuation Click here

Question

: HW7 ctor Problem 7.07 Click here to read the eBook: Bond Valuation Click here to read the eBook: Bond Yields INTEREST RATE SENSITIVITY An investor purchased the following 5 bonds. Each bond had a par value of $1,000 and an 9% yield to maturity on the purchase day. Immediately after the 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. Enter all amounts Price 9% Price @ 7% Percentage Change 10-year, 10% annual coupon 10-year zero 5-year zero 30-year zero $100 perpetuity 0 Icon Key Problem 7.07

Explanation / Answer

1. 10 year 10% coupon

Price at 9% yield = PV(rate,nper,pmt,fv) where rate = 0.09, nper =10, pmt = 100, fv =1000. Price = PV(0.09,10,100,1000) = $1,064.18

Price at 7% yield = PV(0.07,10,100,1000) = $1,210.10

Percentage change = ($1210.10 -$1064.18)/1064.18 = 0.1377 = 13.77%

2. 10 Year zero

Price at 9% =1000/1.09^10 = $422.41

Price at 7% = 1000/1.07^10 = $508.35

Percentage change = (508.35-422.41)/422.41 = 0.2035 = 20.35%

3. 5 Year zero

Price at 9% =1000/1.09^5 = $649.93

Price at 7% = 1000/1.07^5 = $712.99

Percentage change = (712.99-649.93)/649.93= 0.0970 = 9.70%

4. 30 Year zero

Price at 9% =1000/1.09^30 = $75.37

Price at 7% = 1000/1.07^30 = $131.37

Percentage change = (131.37-75.37)/75.37= 0.7430 = 74.30%

5.$100 Perpetuity

Price at 9% = 100/0.09 = 1,111.11

Price at 7% = 100/0.07 = 1,428.57

Percentage change in price = (1428.57-1111.11)/1111.11 = 0.2857 = 28.57%

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