Question

# 6. Consider a bond with semiannual payments with 10 years to maturity, coupon of 10%, 8%...

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.

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.

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