Question

4. A bond trader purchased each of the following bonds at a yield to maturity of 11%. Immediately after she purchased the bonds, interest rates fell to 9%. What is the percentage change in the price of each bond after the decline in interest rates? Fill in the following table:

Price @ 11%​Price @ 9%​Percentage Change

10-year, 10% annual coupon

10-year zero

5-year zero

30-year zero

Perpetuity, $100 annual coupon

5. An investor has two bonds in his portfolio. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity equal to 8.4%. One bond, Bond C, pays an annual coupon of 10%, the other bond, Bond Z, is a zero coupon bond. Assuming that the yield to maturity of each bond remains at 8.4% over the next 4 years, what will be the price of each of the bonds at the following time periods? Fill in the following table:

Time​​Price of Bond C​​Price of Bond Z

Answer 1

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Answer(4):

DB DC DD DE DF DG DH DI DJ RATE 11% 9% PAR VALUE 1000 1000 (P1 -PO)/PO excel formulas PO P1 price @11% price @9% percent change price @9% [=PV(SDE$2,DD8,-DC8,-$DES3)] COUPON YEARS price @11% 8 10 year, 10% coupon 1064.18 13.08% (=(DF8-DE8)/DE8] 19.94% [=(DF9-DE9)/DE9] 9.52% [=(DF10-DE10)/DE10] [-PVISDD$2,DD10,-DC10,-$DD$3]] [=PV(SDE$2,DD10,-DC10,-ŞDE$3]] 72.54% [=(DF11-DE11)/DE11] [=PV(SDD$2,DD11, DC11, $DD$3)) [=PV(SDE$2,DD11,-DC11, $DES3)] 22.22% [=(DF12-DE12)/DE12] [=DC12/DD2] [=PV(SDDS2,DD8,-DC8,-$DD$3)] [=PV($DD$2,DD9,-DC9,-$DD$3] 100 10 941.11 9 10 year zero [=PV($DE$2,DD9,-DC9,-SDE$3)] 10 352.18 422.41 10 5 year zero 593.45 649.93 11 30 year zero 43.68 75.37 30 12 $100 perpetuity [=DC12/DE2] 100 INFINITE 909.09 1111.11 13 14 15 16 17 18 19 20 21

Answer(5):

Year to maturity Price Bond C Price Bond Z 1,052.53 $ =PV(8.4%,4,100,1000)*-1 724.24 =PV(8.4%,4,0,1000)*-1 1,040.94 $ 785.08 =PV(8.4%,3,100,1000)*-1 =PV(8.4%,3,0,1000)*-1 1,028.38 $ =PV(8.4%,2,100,1000)*-1| =PV(8.4%,2,0,1000)*-1 851.02 1,014.76 $ 922.51 =PV(8.4%,1,100,1000)*-1 =PV(8.4%,1,0,1000)*-1 $4 1,000.00 $ =PV(8.4%,0,100,1000)*-1 1,000.00 =PV(8.4%,0,0,1000)*-1 2.