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Question 2 . (30%) Consider an 8 percent coupon, 18-year maturity bond where coupons are paid annually and time zero market yield level is 8
Question 2. (30%) Consider an 8 percent coupon, 18-year maturity bond where coupons are paid annually and time zero market yield level is 8 percent.
- (8%) Find the possible prices of this bond at the following market yield levels (assuming a flat-term structure) and calculate the (actual) percentage price () change relative to the price ()at 8 percent yield level. In other words fill in the following table.
Yield (%) | Price ($) levels for the 8%, 18-year bond | |
5 |
|
|
6 |
|
|
7 |
|
|
7.5 |
|
|
8 |
|
|
8.5 |
|
|
9 | 1,000 |
|
10 |
|
|
11 |
|
|
- (7%) Plot the price-yield graph of this bond, utilizing information obtained in part a.
(Attach the graph with a title Question 2 Part b)
- (8%) Calculate the duration of this bond at the following yield levels. (In other words fill in the following table).
Yield (%) | Duration |
5 |
|
6 |
|
7 |
|
8 |
|
9 |
|
10 |
|
11 |
|
- (7%) Compare and contrast (question 1, part c) and (question 2, part c) and interpret the results.
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