Homework Answers
as required return for bond is not given we are assuming it 10%
now C=8%
t= 2 years
quarterly c= 4% which equals coupon = 400/4=100
T= 2*4= 8
RATE= 10/4=2.5
BOND PRICE AT 2.5% AND 8 YEARS= 6807
2) when market yield decreases by 4.5% so required rate on bond = 10-4.5= 5.5%
t=2*4=8
rate= 5.5/4=1.375
BOND PRICE AT 1.375% AND 8 YEARS= 7392
SO PERCENTAGE CHANGE IN ABC BOND PRICE= (7392-6807)/6807*100=8.59% APPROX
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