Homework Answers
As a rule of thumb, longer term bonds experience a larger price change than short term bonds. High coupon bonds are less sensitive to interest rate changes than low coupon bonds. So as per rule of thumb,
Answer is a)
As YTM is also 8% smaller than YTM of c) it will increase the YTM to match the cost of c) bond
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6. Which of the following bonds will have the largest price change if the interest rate...
Which of the following bonds will have the greatest degree of interest-rate risk? A. A 10-year,...
Which of the following bonds will have the greatest degree of interest-rate risk? A. A 10-year, 6% semi-annual coupon with a yield of 6% B. A 10-year 5% semi-annual coupon with a yield of 6% C. An 8-year, 6% semi-annual coupon with a yield of 6% D. An 8-year, 5% semi-annual coupon with a yield of 6%
INTEREST RATE SENSITIVITY An investor purchased the following 5 bonds. Each bond had a par value...
INTEREST RATE SENSITIVITY An investor purchased the following 5 bonds. Each bond had a par value of $1,000 and an 10% yield to maturity on the purchase day. Immediately after the investor purchased them, interest rates fell, and each then had a new YTM of 5%. 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. Enter...
Interest Rate Sensitivity A bond trader purchased each of the following bonds at a yield to...
Interest Rate Sensitivity A bond trader purchased each of the following bonds at a yield to maturity of 8%. Immediately after she purchased the bonds, interest rates fell to 6%. What is the percentage change in the price of each bond after the decline in interest rates? Fill in the following table. Assume annual coupons and annual compounding. Do not round intermediate calculations. Round the monetary values to the nearest cent and percentage values to two decimal places. Price @...
Consider three bonds with maturities of 3, 6, and 9 years. All three bonds have a...
Consider three bonds with maturities of 3, 6, and 9 years. All three bonds have a coupon rate of 7% and have face values of $1,000. Assume semiannual coupon payments. Use this information to answer the following questions: a) What would be the market price of each bond if their YTM was 5%? b) What would be the market price of each bond if their YTM was 9%? c) Graph the relationship between bond prices and the yields-to-maturity for the...
5a FYI bonds have a par value of $1,000. The bonds pay an 8% annual coupon...
5a FYI bonds have a par value of $1,000. The bonds pay an 8% annual coupon and will mature in 11 years. i) Calculate the price if the yield to maturity on the bonds is 7%, 8% and 9%, respectively. ii) What is the current yield on these bonds if the YTM on the bonds is 7%, 8% and 9%, respectively. Hint, you can only calculate current yield after you have determined the intrinsic value (price) of the bonds. iii)...
Which of the following statements is CORRECT? Question 14 options: 10-year, zero coupon bonds have more...
Which of the following statements is CORRECT? Question 14 options: 10-year, zero coupon bonds have more reinvestment risk than 10-year, 10% coupon bonds. A 10-year, 10% coupon bond has less reinvestment risk than a 10-year, 5% coupon bond (assuming all else equal). The total (rate of) return on a bond during a given year is the sum of the coupon interest payments received during the year and the change in the value of the bond from the beginning to the...
Which of the following statements is CORRECT? O 10-year, zero coupon bonds have more reinvestment risk...
Which of the following statements is CORRECT? O 10-year, zero coupon bonds have more reinvestment risk than 10-year, 10 % coupon bonds OA 10-year, 10% coupon bond has less reinvestment risk than a 10-year, 5 % coupon bond (assuming all else equal). The total (rate of) return on a bond during a given year is the sum of the coupon interest payments received during the year and the change in the value of the bond from the beginning to the...
Which of the following bonds has the greatest interest rate price risk?
A) A 10-year, $1,000 face value, 10% coupon bond with semiannual interest payments.B) A 10-year, $1,000 face value, zero coupon bond.C) All 10-year bonds have the same price risk since they have the same maturity.D) A 10-year, $1,000 face value, 10% coupon bond with annual interest payments.E) A 10-year $100 annuity.
6. PRICE CHANGE: Two bonds offer a five percent coupon rate, paid annually, and sell at...
6. PRICE CHANGE: Two bonds offer a five percent coupon rate, paid annually, and sell at par ($1,000). One bond matures in two years and the other matures in ten years. What are the YTMs on each bond? If the YTM changes to four percent, what happens to the price of each bond? What happens if the YTM changes to six percent?
QUESTION 4 IBM's bonds currently sell for $1,040 and have a par value of $1,000. They...
QUESTION 4 IBM's bonds currently sell for $1,040 and have a par value of $1,000. They pay $65 annual coupon and have a 15 year maturity, but may be called in 5 years at $1,000. What is their Yield to Maturity (YTM)? 5.78% 6.39% 6.71% 6.09% QUESTION 5 Bob's corporation's bonds make an annual payment of 7.35%. The bonds have a par value of $1,000, a current price of $1,130, and mature in 12 years. What is the yield to...
INTEREST RATE SENSITIVITY An investor purchased the following 5 bonds. Each bond had a par value of $1,000 and an 10% yield to maturity on the purchase day. Immediately after the investor purchased them, interest rates fell, and each then had a new YTM of 5%. 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. Enter...
Interest Rate Sensitivity A bond trader purchased each of the following bonds at a yield to maturity of 8%. Immediately after she purchased the bonds, interest rates fell to 6%. What is the percentage change in the price of each bond after the decline in interest rates? Fill in the following table. Assume annual coupons and annual compounding. Do not round intermediate calculations. Round the monetary values to the nearest cent and percentage values to two decimal places. Price @...
5a FYI bonds have a par value of $1,000. The bonds pay an 8% annual coupon and will mature in 11 years. i) Calculate the price if the yield to maturity on the bonds is 7%, 8% and 9%, respectively. ii) What is the current yield on these bonds if the YTM on the bonds is 7%, 8% and 9%, respectively. Hint, you can only calculate current yield after you have determined the intrinsic value (price) of the bonds. iii)...
Which of the following statements is CORRECT? O 10-year, zero coupon bonds have more reinvestment risk than 10-year, 10 % coupon bonds OA 10-year, 10% coupon bond has less reinvestment risk than a 10-year, 5 % coupon bond (assuming all else equal). The total (rate of) return on a bond during a given year is the sum of the coupon interest payments received during the year and the change in the value of the bond from the beginning to the...
6. PRICE CHANGE: Two bonds offer a five percent coupon rate, paid annually, and sell at par ($1,000). One bond matures in two years and the other matures in ten years. What are the YTMs on each bond? If the YTM changes to four percent, what happens to the price of each bond? What happens if the YTM changes to six percent?
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