Question
A $1000 face value bond with 8 years to maturity pays a semi-annual coupon of 10% and the market required yield to maturity is also
A $1000 face value bond with 8 years to maturity pays a semi-annual coupon of 10% and the market required yield to maturity is also 10%.
The price of this bond is $___________ , and if interest rates increase by 50 basis points to 10.5%, the price of this bond will fall by _________%.
Compare to: A $1000 face value bond with 4 years to maturity pays a semi-annual coupon of 10% and the market required yield to maturity is also 10%.
The price of this bond is $__________ , and if interest rates increase by 50 basis points to 10.5%, the price of this bond will fall by _______%.
Therefore: interest rate risk ____________ as the time to maturity of a bond decreases.
(Round bond values to the nearest $. Round % answers to nearest basis point. In last blank, enter either 'increase' or 'decrease').
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
The Psychology Of Trading Tools And Techniques For Minding The Markets
Authors: Brett N. Steenbarger
1st Edition
0471267619, 9780471267614
