5. Bond Dave has a 3 percent coupon rate, makes semiannual payments, a 8 percent
ID: 2656122 • Letter: 5
Question
5. Bond Dave has a 3 percent coupon rate, makes semiannual payments, a 8 percent YTM, and 26 years to maturity. If interest rates suddenly rise by 5 percent, what is the percentage change in the price of Bond Dave? Enter the answer with 4 decimals (e.g. 0.0123).
6. You purchase a bond with an invoice price of $856. The bond has a coupon rate of 9 percent, and there are 1 months to the next semiannual coupon date. What is the clean price of the bond? Enter the answer with 2 decimals (e.g. 954.23).
7. You purchase a bond with an clean price of $875. The bond has a coupon rate of 6 percent, and there are 2 months to the next semiannual coupon date. What is the dirty price of the bond? Enter the answer with 2 decimals (e.g. 954.23).
8. Ackerman Co. has 11 percent coupon bonds on the market with 9 years left to maturity. The bonds make semiannualpayments. If the bond currently sells for $1035.15, what is its YTM? Answer with 4 decimals (e.g. 0.0123)
Explanation / Answer
5.
Using financial calculator BA II Plus - Input details:
YTM of 8%
I/Y = Rate or yield / frequency of coupon in a year =
4.000000
PMT = Coupon rate x FV / frequency =
-$15.00
N = Number of years remaining x frequency =
52.00
FV = Future Value =
-$1,000.00
CPT > PV = Present value of bond =
$456.3105
Using financial calculator BA II Plus - Input details:
YTM of 13%
I/Y = Rate or yield / frequency of coupon in a year =
6.500000
PMT = Coupon rate x FV / frequency =
-$15.00
N = Number of years remaining x frequency =
52.00
FV = Future Value =
-$1,000.00
CPT > PV = Present value of bond =
$259.8682
Percentage change = (PV at 13% YTM - PV at 8% YTM)/ PV at 8% YTM
Percentage change = ($259.8682 - $456.3105)/ $456.3105
Percentage change = -43.0501% or -0.4305
.
6.
Invoice price = Clean price + Accrued interest for 5 months
$856 = Clean price + Face value x Coupon rate x Months after semiannual payment/12
Clean price = $856 - $1000 x 9% x 5/12
Clean price = $818.50
.
7.
Invoice price = Clean price + Accrued interest for 4 months
Invoice price = $875 + $1000 x 6% x 4/12
Invoice price = $895.00
.
8.
Using financial calculator BA II Plus - Input details:
#
FV = Future Value / Face Value =
$1,000.00
PV = Present Value =
-$1,035.15
N = Number of years remaining x frequency =
18
PMT = Payment = Coupon / frequency =
$55.00
CPT > I/Y = Rate per period or YTM per period =
5.1947
Convert Yield in annual rate = YTM *2 /100
0.1039
YTM = 10.3894% or 0.1039
Using financial calculator BA II Plus - Input details:
YTM of 8%
I/Y = Rate or yield / frequency of coupon in a year =
4.000000
PMT = Coupon rate x FV / frequency =
-$15.00
N = Number of years remaining x frequency =
52.00
FV = Future Value =
-$1,000.00
CPT > PV = Present value of bond =
$456.3105
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