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7-6 BOND VALUATION An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face
7-6 BOND VALUATION An investor has two bonds in her portfolio, Bond C and Bond Z. Each bond matures in 4 years, has a face value of $1,000, and has a yield to maturity of 8.2%. Bond C pays an 11.5% annual coupon, while Bond Z is a zero coupon bond. Assuming that the yield to maturity of each bond remains at 8.2 % over the next 4 years, calculate the price of the bonds at each of the following years to maturity: . Years to Maturity Price of Bond C Price of Bond Z 3 2 1 b. Plot the time path of prices for each bond. INTEREST RATE SENSITIVITY An investor purchased the following five bonds. Each bond had a par value of $1,000 and an 8% yield to maturity on the purchase day. Immediately after the investor purchased them, interest rates fell, and each then had a new YTM of 7% What is the percentage change in price for each bond after the decline in interest rates? Fill in the following table: 7-7 Percentage Change Bond Price @8% Price @7% 10-year, 10 % annual coupon 10-year zero 5-year zero 30-year zero $100 perpetuity
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