Question

A 6-year 5% bond is selling to yield 6%. The bond pays interest semi-annually. Using the approximate formula 1. What is the estimated bond price for 150 basis points decrease in the yield, using approximate duration formula to estimate the new price? 2. What would explain the difference between the estimated bond price and the actual bond price you find using the financial calculator? 3. How can you correct the mispricing? Please provide calculations for the correction.

Answer #1

A 6.7% coupon bearing bond that pays interest semi-annually has
a yield to maturity of 6.3% per year. If the bond has a duration of
13.2 years and the market yield decreases 32 basis points,
calculate an estimate of the percent price change due to duration
alone. (Answer to the nearest hundredth of a percent, i.e. 1.23 but
do not use a % sign).

A bond has 2 year to maturity, 6% coupon, 8% yield and pays
annually. The current price of the bond is $964.3347. If yield
increases by 25 basis points, calculate the new bond price using
the time value of money formulas (i.e., bond formula). 972.12
970.53 963.99 959.95 None of the above

A bond has a coupon rate of 6 percent, with payments
semi-annually. It matures in 2.5 years and has a yield to maturity
of 7 percent (15 points). a. Use the “long method” to determine the
duration and modified duration of this bond? b. If the yield to
maturity increases to 9 percent, what is the approximate percent
change in price based on the modified duration calculated in ‘a?’
c. What is the actual percentage change in price if the...

A 5-year 6.5% annual coupon bond is selling to yield 7%. The
bond pays interest annually. The par value of the bond is $100. a.
What is the price of the 5-year 6.5% coupon bond selling to yield
7%? b. What is the price of this bond one year later assuming the
yield is unchanged at 7%? c. Suppose that one year later the yield
of the bond decreases to 6.7%. What is the price change
attributable to moving to...

The market price of a bond is $900 for a 10-year bond that pays
interest semi-annually at a coupon rate of 6% per annum. What is
the bond’s expected return, stated on an annual basis compounded
semi-annually? What is the bond’s expected return, stated on an
annual basis compounded annually? Show steps on how to
solve using excel and the formulas used as well as manually how to
solve it

6. Consider a 10 year bond with face value $1,000 that pays a
6.8% coupon semi-annually and has a yield-to-maturity of 8.4%. What
is the approximate percentage change in the price of bond if
interest rates in the economy are expected to decrease by 0.60% per
year? Submit your answer as a percentage and round to two decimal
places. (Hint: What is the expected price of the bond before and
after the change in interest rates?)

5. A bond that yields 6% pays a coupon of $20 semi-annually.
Which of the following is most likely the price of the bond?
6. What is the coupon rate for the bond? Assume semi-annual
payments. Answer as a percent!
Bond
Coupon Rate
Yield
Price
t
Apple B
?
5.1%
1012.5
14
semi annual means 6 months.

A bond that yields 6% pays a coupon of $30 semi-annually. Which
of the following is most likely the price of the bond?
$990
$1000
$1050
Not enough information to determine.
5 points
QUESTION 2
Investors with very high tax rates usually prefer municipal
bonds because of the tax benefit.
True
False
5 points
QUESTION 3
A bond that sells for greater than $1000 when yields are 10%
must have an annual coupon that is greater than $100....

A $4,500 bond pays interest at 7% compounded semi-annually. The
bond is redeemable in 1 year 6 months, and is purchased to yield
8%.
Find the purchase price of the bond.
Calculate the premium or discount.

A $8000 bond that pays 6% semi-annually is redeemable at par in
18 years. Calculate the purchase price if it is sold to yield 8%
compounded semi-annually.

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 8 minutes ago

asked 40 minutes ago

asked 42 minutes ago

asked 53 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago