Question

An investor purchased the following five bonds. Each bond had a par value of $1,000 and a 9% yield to maturity on the purchase day. Immediately after the investor purchased them, interest rates fell, and each then had a new YTM of 6%. What is the percentage change in price for each bond after the decline in interest rates? Fill in the following table. Enter all amounts as positive numbers. Do not round intermediate calculations. .

Price @ 9% Price @ 6% Percentage Change

10-year, 10% annual coupon

% 10-year zero

5-year zero

30-year zero

$100 perpetuity

Answer #1

Bonds | Price at 9% | Price at 6% | % Change | |

10- yr.,10% annual Coupon | ((1000*10%)*(1-1.09^-10)/0.09)+(1000/1.09^10)= | ((1000*10%)*(1-1.06^-10)/0.06)+(1000/1.06^10)= | ||

1064.18 | 1294.40 | (1294.40-1064.18)/1064.18= | 21.63% | |

10-Yr. Zero | 1000/1.09^10= | 1000/1.06^10= | ||

422.41 | 558.39 | (558.39-422.41)/422.41= | 32.19% | |

5-yr. Zero | 1000/1.09^5= | 1000/1.06^5= | ||

649.93 | 747.26 | (747.26-649.93)/649.93= | 14.98% | |

30-yr. Zero | 1000/1.09^30= | 1000/1.06^30= | ||

75.37 | 174.11 | (174.11-75.37)/75.37= | 131.01% | |

$100 perpetuity | 100/9%= | 100/6%= | ||

1111.11 | 1666.67 | (1666.67-1111.11)/1111.11= | 50.00% |

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