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Banks DIH recently issued three bonds with 8% coupon rates, all sell at par value of $1,000, to aid its expansion. Renewable Energy (RE) bond
- Banks DIH recently issued three bonds with 8% coupon rates, all sell at par value of $1,000, to aid its expansion. Renewable Energy (RE) bond has a maturity of 4 years, Motor Vehicle (MV) bond has maturity of 8 years, and the Infrastructure (Infra) bond has maturity of 30 years.
- What happens to the price of each bond if their yields increase to 9%? Show working. (3 marks)
- What happens to the price of each if the yield decreases to 7%. Show working. (3 marks)
- Using a graph, what do you conclude about the relationship between time to maturity and the sensitivity of bond prices to interest rates? (5 marks)
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