Question

6. Consider a bond with semiannual payments with 10 years to maturity, coupon of 10%, 8% as yield to maturity (YTM), and face value of 1000.

A. Find the price of the bond at t=0 Interest rates drop by 1% after 1 year.

B.Find the new price of the bond. Interest rates drop to 0% after two years from t=0.

C.Find the new price. Interest rates turn negative to -5% after 3 years from t=0.

D. Find the new price of the bond.

Answer 1

a. Price at t= 0 = 1135.90

PMT	50	[1000*10%*1/2]
NPER	20	[10*2]
Rate	4.00%
FV	1000
PV	1135.90	[-pv(rate,nper,pmt,fv)]

Price at t1 if interest rates by 1% = 1197.85

PMT	50	[1000*10%*1/2]
NPER	18	[9*2]
Rate	3.50%	[7%/2]
FV	1000
PV	1197.85	[-pv(rate,nper,pmt,fv)]

b.

PMT	50	[1000*10%*1/2]
NPER	16	[8*2]
Rate	0.00%
FV	1000
PV	1800.00	[-pv(rate,nper,pmt,fv)]

c. Price = 2276.19

PMT	50	[1000*10%*1/2]
NPER	14	[8*2]
Rate	-2.50%
FV	1000
PV	2276.19	[-pv(rate,nper,pmt,fv)]

d. Provide information for this part.