Question
This is your first week at a mutual fund as an analyst. Your boss asked you to evaluate the price risk of two 30-year bonds
This is your first week at a mutual fund as an analyst. Your boss asked you to evaluate the price risk of two 30-year bonds Bond A and Bond B. Bond A has a coupon rate of 4%, while Bond B has a coupon rate of 8%. Both bonds pay their coupons semi-annually
. A) Construct an Excel spreadsheet showing the prices of each of these bonds for yields to maturity ranging from 1% to 15% at intervals of 1%. Column A should show the yield to maturity (ranging from 1% to 15%), and columns B and C should compute the prices of the two bonds (using Excels PV function) at each interest rate.
B) In columns D and E, compute the percentage difference between the bond price and its value when the yield to maturity is 6% (initial yield to maturity) for bonds A and B, respectively [ = {(Price (at current YTM) Price (at initial YTM of 6%)}/ Price (at initial YTM of 6%)].
Face value | $1,000.00 |
Coupon rate bond A | 4.00% |
Coupon rate bond B | 8.00% |
Time | 30.00 Years |
Initial Yield to Maturity | 6.00% |
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