Question

A 10 year bond with annual coupons has face value 500 units and
coupon rate of two

per cent. Because the bond is seen as a “safe refuge”, during
uncertain times the

price is bid up.

a) Calculate by how much the (second hand market) price would need
to rise to

in order for the yield received by a purchaser to fall to
zero.

b) If the bond had no coupons what yield would be the result of an
increase in its

second hand market price by 50%?

c) If, instead, the bond had only coupons (a perpetuity), what
price would drive

the yield to zero? What yield would emerge from an increase in its
second

hand market price by 50%?

d) Briefly explain the contrasts in yield behaviour between
non-coupon bonds,

coupon bonds with short maturities, coupon bonds with finite but
long

maturities and perpetuities. Explain which type is most likely to
have negative

yields and why?

e) Briefly explain why, when yields actually go negative, they do
so by small

amounts

Answer #1

(A)

(B)

(C)

(D) It is difficult to compare two bonds in rupee terms hence we compute yield to maturity to have efficient comparison.There are different methods to compute yield for different type of bonds as per their tenure,coupon payments etc.Yield is different in cases as shown above this is due to different behaviour of bonds as per there nature.Yield is inversely propotional to price of bond therefore as price rises bond yield falls and vice versa.Yield is high in coupon bonds as compared to ZCB and perpetuity.Yiled is high in ZCB then perpetuity.

The perpetuity bond gives the highest negative yield because of highest price of bond.

(E)Yield go negative because it is inversely propotional to price of bond therefore when price rises by any amount yield will fall and vice versa and that is also by small amount because it is long term bond having maturity period of 10 years therefore the longer the maturity the change will be inverse to price but will be in small amount.

Q3:
A 2 year bond with coupons at the end of each of its two years
has face value 100 units and coupon rate of five per cent. Because
the bond is a "safe refuge", during a period of uncertainty, its
price is bid up.
a) Calculate, showing and briefly explaining your
algebraic workings, to what level the (second hand market)
price of the bond would need to rise in order that the yield
received by a purchaser should fall...

A 5-year zero coupon bond pays 10% annual coupons, and has a
face value of $1,000. Zero coupon bonds with 1-5 years to maturity,
each with a face value of $100, have the following prices:
Price of 1-year zero = $99.14
Price of 2-year zero = $97.88
Price of 3-year zero = $96.32
Price of 4-year zero = $89.44
Price of 5-year zero = $87.76
What is the price of the 5-year coupon bond?

a 10-year bond, $1,000 face value bond with a 8% coupon rate and
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be trading at the price of? round to nearest cent

16. A 10-year bond, $100 face value bond with a 8% coupon rate
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17. XYZ company has just issued a 30-year bond with a coupon
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(a) Calculate the Modified duration of the bond.(b) Estimate the
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first-order modified approximation. (c) Estimate the price of the
bond if the yield rate decreases by 0.25% using the first-order
Macaulay approximation.

A 7-year $500 par value bond has annual coupons with 3.7% annual
coupon rate. It is yielding at an annual effective rate of
3.25%.
(a) Calculate the Modified duration of the bond.
(b) Estimate the price of the bond if the yield rate increases
by 0.75% using the first-order modified approximation.
(c) Estimate the price of the bond if the yield rate decreases
by 0.25% using the first-order Macaulay approximation.

Suppose a 9-year bond with $100 face value, 2.00% coupon rate
and annual coupons is currently trading at a price of $104.00. All
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Group of answer choices
it will increase by $39.118
it will decrease by $36.576
it will stay the same
it will decrease by $36.974

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a. What is the bonds yield to maturity ( expressed as an APR with
semiannual compounding)?
b. If the bonds yield to maturity changes to 9/1% APR what will be
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