Question

1. Assume you buy a bond with the following features

Bond maturity = 6
Coupon Rate = 5.00%
Face Value = $1,000
Annual Coupons

When you buy the bond the market interest rate = 5.00%
Immediately after you buy the bond the interest rate changes to 5.50%
What is the "price risk" effect in year 4 ?

Group of answer choices

-$9.23

-$8.95

$8.95

-$9.51

$9.51

$9.23

2. Assume you buy a bond with the following features

Bond maturity = 4
Coupon Rate = 5.00%
Face Value = $1,000
Annual Coupons

When you buy the bond the market interest rate = 6.00%
Immediately after you buy the bond the interest rate changes to 5.50%
What is the "reinvestment" effect in year 3 ?

Group of answer choices

-$0.78

-$0.80

$0.78

$0.80

3.Assume you buy a bond with the following features

Bond maturity = 4
Coupon Rate = 5.00%
Face Value = $1,000
Annual Coupons

When you buy the bond the market interest rate = 6.00%
Immediately after you buy the bond the interest rate changes to 6.25%
What is the "reinvestment" effect in year 4 ?

Group of answer choices

-$0.81

$0.84

$0.81

-$0.84

Answer 1

10 Case 1 Case 2 5% rate (YTM) 5.50% nper (time to maturity) pmt (coupons) fv (par value/redemption value) 2 2 50 -50 -1000 -1000 pv (current bond price) 990.77 1000.00 Price Risk 9.23 [१৭०-77 - 10०9)

2 Coupan 1000 X 5/. FV of Coupon :f a«-invested af 6/. 5O(.06) +53 t56.18 59. 5508 $168.73 FV of Coupon :f a«-invested af 5.50 /. 5o (1.06) (1.055) + 59.2699 52.75 55. 915 I67.93 Reinvistment «fstcr 167.93 ( 168. 73 $0.go

(3 ζωυροn I000 x 5 50 FV of Coupon f 3 so(1.06) + 50 (1.00) 50(1.0 50(1.06) 63.12 +53 59.5 + 56.1 $ 231.56 FV of Coupon :f >«-invested at 6.25 /. 3 = 50 (1-0)(1-0125) t 50(1-0c)(.02s) + So(1-06)(1.0025)+ 50 (1.06)5) + 53.125 +56.3125 59.9125 63.272725 232.40 Reinvistment afstcr 232.4 $231.56 0.24