1.Consider a five-year, 15 per cent annual coupon bond with a face value of $1000. The bond...
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1.Consider a five-year, 15 per cent annual coupon bond with a face value of $1000. The bond is trading at a yield to maturity of 12 per cent.
What is the price of the bond?
If the yield to maturity increases 1 per cent, what will be the bond’s new price?
Using your answers to parts
(a) and (b), what is the percentage change in the bond’s price as a result of the 1 per cent increase in interest rates?
Repeat parts
(b) and
(c) assuming a 1 per cent decrease in interest rates.
What do the differences in your answers indicate about the rate–price relationships of fixed-rate assets? LO 6.4
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Related Book For
Financial Institutions Management A Risk Management
ISBN: 9781743073551
4th Edition
Authors: Helen Lange, Anthony Saunders, Marcia Millon Cornett
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