Question
Considera2-year,risk-freebondwithacouponrateof6%(annualcoupons)andafaceamount of$1,000. a.What ispriceofthisbondiftheYTMis5%?6%?7%? b.Ifyoubuythebondfor$1,000(YTM=6%),holdittomaturityandyoureinvestthe couponpaymentat5%,whatistheannualHPRonyourinvestment? c.Ifyoubuythebondfor$1,000(YTM=6%),thentheyieldincreasesto7%,andyousell thebondimmediatelyafterthefirstcouponpayment(in1year),whatisyourHPR? d.Iftheyieldonthebondis6%(P=$1,000), i. WhatistheMacaulayduration? ii.Iftheyieldincreasesto7%immediately,whatdoesthedurationapproximation predictwillbethepercentagechangeinthebondprice? iii.Iftheyieldincreasesto7%immediately,whatistheactualpercentagechangein thebondprice?
Considera2-year,risk-freebondwithacouponrateof6%(annualcoupons)andafaceamount of$1,000. a.What ispriceofthisbondiftheYTMis5%?6%?7%? b.Ifyoubuythebondfor$1,000(YTM=6%),holdittomaturityandyoureinvestthe couponpaymentat5%,whatistheannualHPRonyourinvestment? c.Ifyoubuythebondfor$1,000(YTM=6%),thentheyieldincreasesto7%,andyousell thebondimmediatelyafterthefirstcouponpayment(in1year),whatisyourHPR? d.Iftheyieldonthebondis6%(P=$1,000), i. WhatistheMacaulayduration? ii.Iftheyieldincreasesto7%immediately,whatdoesthedurationapproximation predictwillbethepercentagechangeinthebondprice? iii.Iftheyieldincreasesto7%immediately,whatistheactualpercentagechangein thebondprice?
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Entrepreneurial Finance
Authors: Philip J. Adelman; Alan M. Marks
6th edition
