Question
You are considering an investment in two different bonds.One bond matures in nine years and has a face value of $1,000.The bond pays an annual
- You are considering an investment in two different bonds.One bond matures in nine years and has a face value of $1,000.The bond pays an annual coupon of 3% and has a 4.5% yield to maturity.The other bond is an 8-year zero coupon bond with a face value of $1,000 and has a yield to maturity of 4.5%.
a.What is the price of each bond?
b.What is the duration of each bond?
c.If the yield to maturity of each bond were to immediately increase to 7.5%, what would be the percentage change (including the correct sign) in the price of each bond (from the price found in part a)?
d.If the yield to maturity of each bond were to immediately decrease to 2%, what would be the percentage change (including the correct sign) in the price of each bond (from the price found in part a)?
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Contemporary Financial Management
Authors: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao
13th edition
1285198840, 978-1285198842
