Question

Question 4 10 pts Assume you buy a bond with the following features Bond maturity = 6 Coupon Rate = 4.00% Face Value = $1,000 Annual Coupons When you buy the bond the market interest rate = 4.00% Immediately after you buy the bond the interest rate changes to 3.50% What is the "price risk" effect in year 3? 0-$14.01 0-$13.59 $14.43 0-$14.43 O $13.59 O $14.01

Answer 1

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BA PLUS- Microsoft Excel (Product Activation Failed) Review File Home Insert Page Layout Formulas Data View Add-Ins E AutoSum - Cut AS Wrap Text Calibri 11 General E Copy Fill Merge & Center Insert Delete Format Paste в IU* +.0 .00 .00 0 Conditional Format Cell Sort & Find & % Format Painter Clear Filter Select Formatting as Table Styles Editing Clipboard Font Alignment Number Styles Cells fox Y19 AB AD AF Q T X Z AA AC AE AG BOND YTM 4% IMMEDIATELY AFTER PURCHASE, YTM = 3.5% AS YTM HAS DECREASED, PRICE WILL INCREASE NOW IF YTM WOULD HAVE BEEN = 4% 9 10 THE PRICE WOULD HAVE BEEN =1000 IN YEAR 3 AS WELL. 11 THIS IS BECAUSE COUPON RATE AND YTM ARE SAME 12 SO BOND WIL TRADE AT PAR = 1000 13 14 CALCULATOR NOW AFTER 3 YEARS, LIFE OUTSTANDING = 3 YEARS C/Y = P/Y = 15 STROKES 1 1 set then 16 17 N = 3 I/Y = 3.50% 18 19 PMT= -40 20 FV = -1000 PV 21 CPT 1014.01 22 14.01 [1014.01 - 1000] 23 ANSWER SO PRICE RISK = 24 Sheet4 choice NPV BONDPV FV 120% Rea II erences WA 08:50 ENG 31-10-2019 456 7 8이