Question
Use the excel spread sheet to calculate the (change in) bond prices and a standard calculator to calculate the relative change. Both bonds have a
Use the excel spread sheet to calculate the (change in) bond prices and a standard calculator to calculate the relative change. Both bonds have a face value of AUD 1000 and time to maturity of 10 years. However, Bond A is a zero coupon bond and Bond B has AUD 150 coupons.
How do the prices (present values) of the two bonds change if the market yield is decreasing from 15% to 10%?
Which bond reacts more to the change in market yields?
The initial prices are 247.18 and 1000. The yield decrease will increase the prices to 385.54 and 1307.23. The coupon bond reacted less with a price increase of 31% versus an increase of 56% for the zero coupon bond. | ||
The initial prices are 247.18 and 1000. The yield decrease will increase the prices to 385.54 and 1307.23. The zero coupon bond reacted more with a price increase of 56% versus an increase of 31% for the coupon bond. | ||
Coupon bonds are also called Fixed Income Securities, so there is no price drop. |
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