Question

Bonds are priced per $100 face value 1) Consider a 10-year 6 percent coupon bond. a)...

Bonds are priced per $100 face value

1) Consider a 10-year 6 percent coupon bond.

a) What is the price of this bond if the market yield is 6%?

b) What is the price of this bond if the market yield is 7%?

c) What is the price of this bond if the market yield is 5%?

2) Consider a 20-year 6 percent coupon bond.

a) What is the price of this bond if the market yield is 6%?

b) What is the price of this bond if the market yield is 7%?

c) What is the price of this bond if the market yield is 5%?

3) Consider a 6 percent coupon bond with a market yield of 7%.

a) What is the price of this bond if it matures tomorrow?

b) What is the price of this bond if it matures in 5 years?

c) What is the price of this bond if it matures in 10 years?

d) What is the price of this bond if it matures in 15 years?

e) What is the price of this bond if it matures in 20 years?

f) What is the price of this bond if it matures in 25 years?

g) What is the price of this bond if it matures in 30 years?

h) Plot price on the vertical axis and term to maturity on the horizontal axis.

4) Consider a 20-year 6 percent coupon bond.

a) What is the price of this bond if the market yield is 6%?

b) What is the percentage change in the price of this bond if the market yield rises to 7%?

c) What is the percentage change in the price of this bond if the market yield falls to 5%?

5) a) Consider a 20-year 6 percent coupon bond.

i) What is the price of this bond if the market yield is 8%?

ii) What is the percentage change in the price of this bond if the market yield rises to 9%?

b) Consider a 20-year 7 percent coupon bond. iii)

What is the price of this bond if the market yield is 8%? iv)

What is the percentage change in the price of this bond if the market yield rises to 9%?

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Homework Answers

Answer #1

The formula for the bond price is:

Where

C = Coupon Value

i = YTM

N = No of periods

M = Face Value

Solution 1>

Solution 2>

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