Question

compare the price risk of two bonds, both of which have a 10% annual coupon and a $5,000 face value. The first bond matures in five years, the second in 30 years. Using the Data Table Function and also create two line charts to see the sensitivity of price to interest rate change.

please show me how to calculate the answer using excel

Answer #1

Bond's duration is a function for determining the change in its price given a change in coupon rate. Thus bond term of 5 years implies that with every 1% increase/decrease in coupon rate, the price shall vary by 5% in an inversely proportionate manner

Thus bonds with longer duration are more riskier. Assuming interest rate falls every 5years.

PRICING ZERO COUPON BONDS -
(a) Calculate the price of a zero coupon, $1,000 face value,
5-year bond if the appropriate annual discount rate is 12 percent.
Calculate your total return if you hold this bond for three years
and the discount rate does not change. (INCLUDE FORMULAS USED TO
SOLVE PROBLEM IN EXCEL).
EXPECTED RETURN ON T-BILLS -
(b) What is the actual expected return on a US government
12-month, T-bill that is priced at $990, assuming its face...

An investor has two bonds in his portfolio that have a face
value of $1,000 and pay a 10% annual coupon. Bond L matures in 17
years, while Bond S matures in 1 year.
a. What will the value of the Bond L be if the going interest
rate is 7%, 8%, and 11%? Assume that only one more interest payment
is to be made on Bond S at its maturity and that 17 more payments
are to be made...

An investor has two bonds in his portfolio that have a face
value of $1,000 and pay a 12% annual coupon. Bond L matures in 20
years, while Bond S matures in 1 year.
A. What will the value of the Bond L be if the going interest
rate is 7%, 8%, and 13%? Assume that only one more interest payment
is to be made on Bond S at its maturity and that 20 more payments
are to be made...

Which of the following bonds has the greatest price risk?
Select one:
a. A 10-year, $1,000 face value, 10% coupon bond with annual
interest payments.
b. A 10-year, $1,000 face value, zero coupon bond.
c.
A 10-year $100 annuity.
d. All 10-year bonds have the same price risk since they have
the same maturity.

You are given the following information about two annual- coupon
bonds, each with a face and redemption value of $1,000 and each 3
years in length:
- Bond A: A 3- year 6% annual coupon bond with a price of
$955.57.
- Bond B: A 3- year 8% annual coupon bond with a price of
$1,008.38.
Using this data, find the annual yield on a 3- year zero- coupon
bond.

An investor has two bonds in his portfolio that have a face
value of $1,000 and pay an 11% annual coupon. Bond L matures in 20
years, while Bond S matures in 1 year.
What will the value of the Bond L be if the going interest rate
is 7%, 9%, and 12%? Assume that only one more interest payment is
to be made on Bond S at its maturity and that 20 more payments are
to be made on...

An investor has two bonds in his portfolio that have a face
value of $1,000 and pay an 8% annual coupon. Bond L matures in 16
years, while Bond S matures in 1 year.
What will the value of the Bond L be if the going interest rate
is 5%, 6%, and 9%? Assume that only one more interest payment is to
be made on Bond S at its maturity and that 16 more payments are to
be made on...

An investor has two bonds in his portfolio that have a face
value of $1,000 and pay a 10% annual coupon. Bond L matures in 12
years, while Bond S matures in 1 year.
What will the value of the Bond L be if the going interest rate
is 5%, 6%, and 11%? Assume that only one more interest payment is
to be made on Bond S at its maturity and that 12 more payments are
to be made on...

An investor has two bonds in his portfolio that have a face
value of $1,000 and pay a 12% annual coupon. Bond L matures in 15
years, while Bond S matures in 1 year.
What will the value of the Bond L be if the going interest rate
is 7%, 9%, and 13%? Assume that only one more interest payment is
to be made on Bond S at its maturity and that 15 more payments are
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Your broker faxed to you the following information about two
annual coupon bonds that you are considering as a potential
investment. Unfortunately, your fax machine is blurring some of
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bonds is the following:
Features IBM Coupon Bond AOL Coupon Bond
Face value $1,000 $5,000
Coupon rate 10.5% ?
Yield to maturity 11.5% 5.5%
Years to maturity 30 25
Price ? $5,335.35

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