Bond A is a premium bond making semiannual payments. The bond pays a coupon rate of 8.6 percent, has a YTM of 6.8 percent, and has 15 years to maturity. Bond B is a discount bond making semiannual payments. This bond pays a coupon rate of 6.8 percent, has a YTM of 8.6 percent, and also has 15 years to maturity. The bonds have a par value of $1,000. What is the price of each bond today? Calculate the price of both bonds if interest rates fall by 2%, 1%, and increase by 1%, 2% (so that you have 5 different prices for each bond). Which bond is more sensitive to changes in interest rates? Comment on why (a good answer will have at least 3 sentences explaining the reason)
Bond A is a premium bond making semiannual payments. The bond pays a coupon rate of 8.6 percent, has a YTM of 6.8 percent, and has 15 years to maturity. Bond B is a discount bond making semiannual payments. This bond pays a coupon rate of 6.8 percent, has a YTM of 8.6 percent, and also has 15 years to maturity. The bonds have a par value of $1,000. What is the price of each bond today? Calculate the price of both bonds if interest rates fall by 2%, 1%, and increase by 1%, 2% (so that you have 5 different prices for each bond). Which bond is more sensitive to changes in interest rates? Comment on why (a good answer will have at least 3 sentences explaining the reason)
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter12: Investing In Stocks And Bonds
Section: Chapter Questions
Problem 10FPE
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