In May 2000, the U.S. Treasury issued 30-year bonds with a coupon rate of 6.25%, paid semi-annually. A bond with a face value of $1,000 pays $31.25 (1,000 × 0.0625 / 2) every six months for the next 30 years; in May 2030, the bond also repays the principal amount, $1,000. 1. What is the value of the bond if, immediately after issue in May 2000, the 30-year interest rate increases to 7.5%? 2. What is the value of the bond if, immediately after issue in May 2000, the 30-year interest rate decreases to 5.0%? 3. On a graph in Excel, show how the value of the bond changes as the interest rate changes (plot the value as a function of the interest rate). At what interest rate is the value of the bond equal to its face value of $1,000?
In May 2000, the U.S. Treasury issued 30-year bonds with a coupon rate of 6.25%, paid semi-annually. A bond with a face value of $1,000 pays $31.25 (1,000 × 0.0625 / 2) every six months for the next 30 years; in May 2030, the bond also repays the principal amount, $1,000.
1. What is the
2. What is the value of the bond if, immediately after issue in May 2000, the 30-year interest rate decreases to 5.0%?
3. On a graph in Excel, show how the value of the bond changes as the interest rate changes (plot the value as a function of the interest rate). At what interest rate is the value of the bond equal to its face value of $1,000?
Step by step
Solved in 4 steps with 4 images
