Question
Consider a 2-year, risk-free bond with a coupon rate of 6% (annual coupons) and a face amount of $1,000. What is price of this bond
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Consider a 2-year, risk-free bond with a coupon rate of 6% (annual coupons) and a face amount of $1,000.
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What is price of this bond if the YTM is 5%? 6%? 7%?
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If you buy the bond for $1,000 (YTM = 6%), hold it to maturity and you reinvest the
coupon payment at 5%, what is the annual HPR on your investment?
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If you buy the bond for $1,000 (YTM = 6%), then the yield increases to 7%, and you sell
the bond immediately after the first coupon payment (in 1 year), what is your HPR?
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If the yield on the bond is 6% (P = $1,000),
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What is the Macaulay duration?
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If the yield increases to 7% immediately, what does the duration approximation
predict will be the percentage change in the bond price?
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If the yield increases to 7% immediately, what is the actual percentage change in
the bond price?
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