Qd 47. We are given a 15-year $1,000 bond with 8% annual coupons sells at par.(a) Determine the price of the bond at an effective rate of 7.92%, using the first-order modifiedapproximation?(b) What is the price using the first-order Macaulay approximation?(c) How does this compare to the exact change in price?

Duration of bond tell the sensitivity of bond's prices with change in interest rate and show how…

Answered: Ve are given a 15-year $1,000 bond with…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 4P

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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?
What would be the value of the bond described in Part d if, just after it had been issued, the expected inflation rate rose by 3 percentage points, causing investors to require a 13% return? Would we now have a discount or a premium bond? What would happen to the bond’s value if inflation fell and rd declined to 7%? Would we now have a premium or a discount bond? What would happen to the value of the 10-year bond over time if the required rate of return remained at 13%? If it remained at 7%? (Hint: With a financial calculator, enter PMT, I/YR, FV, and N, and then change N to see what happens to the PV as the bond approaches maturity.)
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?

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Ve are given a 15-year $1,000 bond with 8% annual coupons sells at par. (a) Determine the price of the bond at an effective rate of 7.92%, using the fir approximation? (b) What is the price using the first-order Macaulay approximation? (c) How does this compare to the exact change in price?