Suppose a 5% coupon, 5-year bond is selling for $1100. The coupon is paid every six months.
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Question:
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Suppose a 5% coupon, 5-year bond is selling for $1100. The coupon is paid every six months. The principal value is $1000.
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(1) Calculate the yield to maturity of this bond. (7 marks). (Hint: Use the Yield function in Excel.)
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(2) Calculate the price of this bond if the yield to maturity increases by 1% with maturity unchanged. (7 marks).
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(3) Calculate the price of this bond if the yield to maturity decreases by 1% with maturity unchanged. (6 marks).
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