Question
1. A 4-year zero-coupon bond has a face value of $1,000. If its YTM changes from 3.1% to 5.9%, what is the resulting percentage change
1. A 4-year zero-coupon bond has a face value of $1,000. If its YTM changes from 3.1% to 5.9%, what is the resulting percentage change in its price? Use the price determined from the first yield, 3.1%, as the base in the percentage calculation. Round to the nearest hundredth of a percent. (e.g., 4.32% = 4.32). [Hint: Percent price change = ((P2-P1)/P1)x100. If the price dropped, enter a negative number]
2. A bond with a $1,000 face value has a 5% annual coupon rate. The bond matures in 19 years. The current YTM on the bond is 3.1%. If you were to buy this bond and hold it for 7 years, how much would the price change while you hold it? Assume the bond's YTM remains the same. Answer in dollars and round to the nearest cent. [Hint: 1) If the price drops, the change is a negative number. 2) Compute and compare the prices under the two scenarios.]
3. You own a bond portfolio worth $28,000. You estimate that your portfolio has an average YTM of 6.9% and a Modified Duration of 7 years. If your portfolio's average YTM were to decrease by 6 basis points, how much would the value of your portfolio change? Round to the nearest cent. [Hint: Answer is positive if the portfolio value increases and negative if the value decreases]
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