Answered

Consider three bonds with 6.80% coupon rates, all making annual coupon payments and all selling at face value. The short-term bond has a maturity of 4 years, the intermediate-term bond has a maturity of 8 years, and the long-term bond has a maturity of 30 years.

a. What will be the price of the 4-year bond if its yield increases to 7.80%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. What will be the price of the 8-year bond if its yield increases to 7.80%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

c. What will be the price of the 30-year bond if its yield increases to 7.80%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

d. What will be the price of the 4-year bond if its yield decreases to 5.80%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

e. What will be the price of the 8-year bond if its yield decreases to 5.80%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

f. What will be the price of the 30-year bond if its yield decreases to 5.80%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

g. Comparing your answers to parts (a), (b), and (c), are long-term bonds more or less affected than short-term bonds by a rise in interest rates?

More or less affected

h. Comparing your answers to parts (d), (e), and (f), are long-term bonds more or less affected than short-term bonds by a decline in interest rates?

More or less affected

Answer :

Answer:

Part a to f are answered in the tables attached. Part g and h are answered below:

Explanation:

Value of a bond is given by the excel function, PV = PV(R,N,PMT,FV)

R - YTM

N - years to maturity

PMT - Coupon

FV - Par value

Coupon = Coupon rate * par value

g - From the column change, Long-term bonds are more affected than short-term bonds by rise in interest rates

h - From the column change, Long-term bonds are more affected than short-term bonds by decline in interest rates

${teks-lihat-gambar} hamzafarooqi188
${teks-lihat-gambar} hamzafarooqi188

Other Questions