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Question 10 (12 points) A zero-coupon bond is bond that does not pay coupon interests. Return on such a bond all comes from capital gain
Question 10 (12 points) A zero-coupon bond is bond that does not pay coupon interests. Return on such a bond all comes from capital gain yield, i.e. you pay $900 today and get the face value of $1,000 at maturity, but you do not receive any coupon payments. A bond trader purchased each of the following bonds at a yield to maturity of 8%. Immediately after she purchased the bond, interest rates fell to 7%. What is the percentage change in the price of each bond after the decline in interest rates? Fill in the following table. Note: this question will be manually graded later. II Format B I U V + v Price @ 8% YTM Price @7% YTM Percentage Change 10-year, 10% semiannual coupon bond 5-year zero-coupon bond 15-year zero-coupon bond $5 perpetuity Hide hint for Question 10 For coupon bond, use the TVM function of your financial calculator. For zero coupon bond, use PV = FV / (1+APR)^N. For perpetuity, use PV = PMT/APR
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