25. What is the price of a S1,000 face value bond with a 10% coupon f the market

Question

25. What is the price of a S1,000 face value bond with a 10% coupon f the market rate is 10%? a. more than $1,000 b. $1,000 c. less than $1,000 d. cannot ascertain 26, The duration of 2-year, 0% coupon bond is-when market rates are 8%? a 3.75 b. 2.02 c. 1.93 d. 1.87 e. 1.14 27. Interest rates will decline when the demand for loanable funds a. shifts to the left. b. shifts to the right. e. anticipates reduced growth in the economy. d, "a" and "c" above. 28. An investor received an 8 percent coupon rate last year on a $1000 bond purchased at par. The inflation rate during the year was 4 percent and is expected to be 5 percent next year. The ex-post real rate earned by the investor last year was approximately a, 8% b.3% . 4% d. 1 percent 29. A 15 year, $1000 bond with a coupon rate of 10% matures in eight years and sells for $1120 What is the yield to maturity? a. 3.97% b. 5.25% c. d. 7.94% 8.56% 30. The duration of2-year, 9.25% coupon a. 3.75 b. 2.42 c. 1.93 d. 1.87 bond is- when market rates are 8%?

Explanation / Answer

1.
Option b.$1000 as coupon rate is equal to market rate
2.
Macaulay Duration=2
Modified Duration=2/1.08=1.851851852
3.
Option d.
4.
Option c.=8%-4%=4%
5.
Option d.
0=-1120+1000*10%/ytm*(1-1/(1+ytm)^15)+1000/(1+ytm)^15
=>ytm=8.55056392387212%
6.
Macaulay Duration=(1*9.25%*1000/1.08+2*9.25%*1000/1.08^2+2*1000/1.08^2)/(9.25%*1000/1.08+9.25%*1000/1.08^2+1000/1.08^2)=1.92
Modifed Duration=1.92/1.08=1.78

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