Question

Consider three bonds with 5.50% coupon rates, all making annual coupon payments and all selling at face value. The short-term bond has a maturity of 4 years, the intermediate-term bond has a maturity of 8 years, and the long-term bond has a maturity of 30 years.

a. What will be the price of the 4-year bond if its yield increases to 6.50%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. What will be the price of the 8-year bond if its yield increases to 6.50%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

c. What will be the price of the 30-year bond if its yield increases to 6.50%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

d. What will be the price of the 4-year bond if its yield decreases to 4.50%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

e. What will be the price of the 8-year bond if its yield decreases to 4.50%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

f. What will be the price of the 30-year bond if its yield decreases to 4.50%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

a: $965.74

b: $939.11

c: $869.41

d: $1035.88

e: $1065.96

f: $1162.89

Workings

BondMaturity	4	8	30
Price at 6.5%	$965.74	$939.11	$869.41
Price at 4.5%	$1,035.88	$1,065.96	$1,162.89

AutoSavet HD Book1 - Excel Sign in - 0 x File Home Insert Draw Page Layout Formulas Data Review View Help Tell me what you want to do Share Comments Calibri -11 AA = = = A = = = General t o Insert - Delete - Format J Paste , ISH Conditional Format as Formatting - Table Styles 40.00 Cell Styles - 1 . Sort & Find & Filter - Select Editing Clipboard C Font Alignment Number Cells B1 - X V fic Bond Maturity 30 Bond Maturity 4 Price at 6.5% --PV(6.5%,C1,5.5%* 1000,1000) --PV(6.5%,D1,5.5%*1000, 1000) --PV(6.5%,E1,5.5%*1000,1000) Price at 4.5% --PV(4.5%,C1,5.5%*1000,1000) --PV(4.5%,D1,5.5%*1000,1000) =-PV(4.5%,E1,5.5%* 1000, 1000)