ces Both Bond Sam and Bond Dave have 8 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has three years to maturity, whereas Bond Dave has 20 years to maturity. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam and Bond Dave? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b.lf rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of Bond Sam and Bond Dave? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. Bond Sam a. Bond Dave b. Bond Sam b. Bond Dave % % % %

ces Both Bond Sam and Bond Dave have 8 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has three years to maturity, whereas Bond Dave has 20 years to maturity. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam and Bond Dave? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b.lf rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of Bond Sam and Bond Dave? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) a. Bond Sam a. Bond Dave b. Bond Sam b. Bond Dave % % % %

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter5: The Cost Of Money (interest Rates)

Section: Chapter Questions

Problem 20PROB

See similar textbooks

Similar questions

Bond Yields and Rates of Return A 10-year, 12% semiannual coupon bond with a par value of 1,000 may be called in 4 years at a call price of 1,060. The bond sells for 1,100. (Assume that the bond has just been issued.) a. What is the bonds yield to maturity? b. What is the bonds current yield? c. What is the bonds capital gain or loss yield? d. What is the bonds yield to call?
Yield to Maturity and Yield to Call Arnot International’s bonds have a current market price of $1,200. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price = $1,090). What is the yield to maturity? What is the yield to call if they are called in 5 years? Which yield might investors expect to earn on these bonds, and why? The bond’s indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?
Suppose a 10-year, 10% semiannual coupon bond with a par value of 1,000 is currently selling for 1,135.90, producing a nominal yield to maturity of 8%. However, the bond can be called after 5 years for a price of 1,050. (1) What is the bonds nominal yield to call (YTC)? (2) If you bought this bond, do you think you would be more likely to earn the YTM or the YTC? Why?
Interest Rate Sensitivity A bond trader purchased each of the following bonds at a yield to maturity of 8%. Immediately after she purchased the bonds, interest rates fell to 7%. What is the percentage change in the price of each bond after the decline in interest rates? Assume annual coupons and annual compounding. Fill in the following table:
Both Bond Sam and Bond Dave have 7.1 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has three years to maturity, whereas Bond Dave has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. Percentage change in price of Sam % Percentage change in price of Dave % If interest rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of these bonds be then? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Both Bond Sam and Bond Dave have 10.6 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 6 years to maturity, whereas Bond Dave has 23 years to maturity. Both bonds have a par value of 1.000. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of these bonds?
Both Bond Sam and Bond Dave have 12.2 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 4 years to maturity, whereas Bond Dave has 21 years to maturity. Both bonds have a par value of 1,000. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16. b. If rates were to suddenly fall by 2 percent instead, what would be the percentage change in the price of these bonds? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Percentage change in price b. Percentage change in price D Bond Sam % % Bond Dave % %
Both Bond Sam and Bond Dave have 9 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 5 years to maturity, whereas Bond Dave has 16 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam? multiple choice 1 -7.52% -7.54% 7.68% -8.15% If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Dave? multiple choice 2 -14.90% -17.51% 16.01% -14.88% If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Sam be then? multiple choice 3 -7.49% 8.32% 8.30% 7.68% If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Dave be then? multiple choice 4 16.01% 19.05% -14.85% 19.07%
Bond J has a coupon rate of 5.3 percent. Bond K has a coupon rate of 15.3 percent. Both bonds have eleven years to maturity, a par value of $1,000, and a YTM of 11.6 percent, and both make semiannual payments. a. If interest rates suddenly rise by 3 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. If interest rates suddenly fall by 3 percent instead, what is the percentage change in the price of these bonds? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
Bond J has a coupon rate of 5.8 percent. Bond K has a coupon rate of 15.8 percent. Both bonds have eleven years to maturity, a par value of $1,000, and a YTM of 12.6 percent, and both make semiannual payments. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. If interest rates suddenly fall by 2 percent instead, what is the percentage change in the price of these bonds? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Bill J Bill K a percentage change in price b percentage change in price
Bond J has a coupon rate of 4.2 percent. Bond K has a coupon rate of 14.2 percent. Both bonds have ten years to maturity, a par value of $1,000, and a YTM of 9.4 percent, and both make semiannual payments. a. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) b. If interest rates suddenly fall by 2 percent instead, what is the percentage change in the price of these bonds? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Bond J Bond K a percentage change in price % % b percentage change in price % %
Bond j has a coupon of 6.2 percent. Bond k has a coupon of 10.2 percent. Both bonds have 20 years to maturity and have a YTM of 6.9 percent. a. If interest rates suddenly rise by 1 percent, what is the percentage price change of these bonds? Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. \table[[,%delta in Price],[Bond j,,%