a) since here the coupon payment is higher than yield to
maturity the bond is selling at premiun
b)price of bond can be found uisng below formulae
Price=(coupon*(1-((1+i)^-n))/i)+(issue price*(1+i)^-n)
Coupon=face value*coupon rate
=1000*30%=300
i=20%
n=3 years
issue price=1000
substituting in formuale we get it as 1210.65
c)duration of bond below
Maculay duration 2.41 years
d)the price of bond will come down since here the interest rate
increased. Since the price and yield are inversely proportional to
each other
Bond Price Change=(Duration×Yield Change*100)
=-2.41*5%=-12.05%
e)let us find price of bond after one year
Price=(coupon*(1-((1+i)^-n))/i)+(issue price*(1+i)^-n)
Coupon=face value*coupon rate
=1000*30%=300
i=25%
n=2 years
issue price=1000
substituting in formuale we get it as 1072
return=(final/initial)-1
=(1072/1210.65)-1=-11.45%
4) Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments...
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Suppose there is a 3-year bond with a $1000 face value, 30% annual coupon payments and a 20% annual yield to maturity. 4) a Without any calculation, briefly explain whether this bond will be selling a premium or a discount. b) Calculate the price of this bond. c) Calculate the duration of this bond. d) Suppose the interest rates in the economy rise by 5 percentage points immediately after someone bought this bond. Show a calculation using duration for what...
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