Question
A. Bond Features Maturity (years) = 7 Face Value = $1,000 Starting Interest Rate 4.28% Coupon Rate = 4% Coupon dates (Annual) If interest rates
A.
Bond Features | |
Maturity (years) = | 7 |
Face Value = | $1,000 |
Starting Interest Rate | 4.28% |
Coupon Rate = | 4% |
Coupon dates (Annual) |
If interest rates change from 4.28% to 6.45% immediately after you buy the bond today (and stay at the new interest rate), what is the price effect in year 2 ?
State your answer to the nearest penny (e.g., 48.45)
If there is a loss, state your answer with a negative sign (e.g., -52.30)
B.
Assume you buy a bond with the following features Bond maturity = 4 Coupon Rate = 5% Face Value = $1,000 Annual Coupons When you buy the bond the market interest rate = 4.24% Immediately after you buy the bond the interest rate changes to 7.15% What is the "reinvestment" effect in year 3 ?
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