Question
A 5-year, $1,000 face bond with a 3% coupon is currently selling with a 4% YTM (yield to maturity). What is the purchase price of
A 5-year, $1,000 face bond with a 3% coupon is currently selling with a 4% YTM (yield to maturity). What is the purchase price of the bond? $955.48, $1,000, $924.88, $972.88
Immediately after you purchase the bond, the reinvestment rate in the market drops to 3%. What is your realized yield on your bond investment? 4.12%, 4.56%, 4%, 3.94%
What is the duration of the bond? 4.71, 4.95, 5, 4.83
If market yields were to drop by 1%, what is the approximate percentage change in price you would expect, based on the bonds duration? 4.83%, 5.12%, 4.95%, 4.71%
How long should you hold the bond, if you want to earn the 4% YTM that you thought you would get when you bought the bond? 4.95 years, 4.71 years, 5 years, 4.83 years
Assume that market yields rise by 40 basis points. What do you expect to happen to the bonds price, using modified duration? $17.31, $45.12, 28.99, $36.75
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