Question

The next four problems refer to US Treasury bo Ted and Alice have bonds with 6% coupons, w payinents. Both bonds are priced at par value bond]. Ted's bond has a 4-year mat remaining until maturity. y bonds held by Ted and Alice. pons, which make semiannual value (that is, $1,000.00 per a maturity and Alice's bond has 20-years 20. If rates suddenly rise by 1 pero se by 1 percentage point that is, 100 basis pom Ted's bond [4-year maturity] estimate the price change for Ted's bond (4-year A) A loss greater than 5% B) A loss less than 5% No change D) A gain less than 5% A gain greater than 5% O sain les percentage point that is, 100 basis points), 1. I rates suddenly rise by 1 percentage point (that is, 10 estimate the price change for Alice's bond [20-year matur A) A loss greater than 5% B) A loss less than 5% C) No change D) A gain less than 5% E A gain greater than 5% 2. If instead, rates suddenly fell by 1 percentage point (that is, 100 basis points), estimate the price change for Ted's bond [4-year maturity). A) A loss greater than 5% B) A loss less than 5% No change D) Again less than 5% E) A gain greater than 5% 23. If instead, rates suddenly fell by 1 percentage point that is, 100 basis points), estimate the price change for Alice's bond [20-year maturity]. A) A loss greater than 5% B) A loss less than 5% C) No change D) A gain less than 5% E) A gain greater than 5%

Answer 1

20: B

21: A

22: D

23: E

Workings

	Ted	Alice
Yield	7%	7%
Price	$965.63	$893.22
Change	-3.44%	-10.68%
Yield	5%	5%
Price	$1,035.85	$1,125.51
Change	3.59%	12.55%

Book1 - Excel Sign in - 0 X Review View Help Tell me what you want to do AutoSave C HO: File Home Insert Draw Page Layout Formulas Data Calibri 11 AA === D ebu Paste LG BIU - 30-A- 3 Clipboard Font Alignment A General $ -% insert - E Delete - J A. Format Share Comments AY O Sort & Find & Filter - Select Editing 898 Conditional Format as Formatting Table Cell Styles Number Styles Cells B1 Alice 0.06 20 Ted Coupon 0.06 Years 4 Face value 1000 Ted Yield 0.07 Price --PV (C6/2,$C$3*2,$C$2*$C$4/2,1000) Change =(C7-C4)/C4 1000 Alice 0.07 =-PV(D6/2,$D$3*2,$D$2*$D$4/2,1000) =(D7-D4)/04 Yield Price Change 0.05 --PV(C10/2,$C$3*2,$C$2*$C$4/2,1000) --PV(D10/2,$D$3* 2,$D$2*$D$4/2,1000) (C11-C4)/C4 =(D11-04)/D4