(a) To Discuss: To use a spreadsheet to calculate the duration of the two bonds in Spreadsheet 11.1 if the market interest rate increases to 12%.The explanation of the reason of the fall in the duration of the coupon bond while the duration of the zero-coupon bond remaining unchanged is to be given. Spreadsheet 11.1 Introduction: A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond.A zero-coupon bond is a bond where the face value is repaid at the time of maturity. Yield to maturity means the discount rate which makes the present payments from the bond equal to the price, in simple terms it is the average rate of return a holder can expect from that bond. Duration is a measure of the sensitivity of the price -- the value of principal -- of a bond to a change in interest rates. The duration of a zero-coupon bond is equal to the time to maturity of the bond.

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Answer 1

Question

Chapter 16, Problem 21PS

Summary Introduction

(a)

To Discuss:

To use a spreadsheet to calculate the duration of the two bonds in Spreadsheet 11.1 if the market interest rate increases to 12%.The explanation of the reason of the fall in the duration of the coupon bond while the duration of the zero-coupon bond remaining unchanged is to be given.

Spreadsheet 11.1

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond.A zero-coupon bond is a bond where the face value is repaid at the time of maturity.

Yield to maturity means the discount rate which makes the present payments from the bond equal to the price, in simple terms it is the average rate of return a holder can expect from that bond. Duration is a measure of the sensitivity of the price -- the value of principal -- of a bond to a change in interest rates. The duration of a zero-coupon bond is equal to the time to maturity of the bond.

Summary Introduction

(b)

To Discuss:

To use the same spreadsheet to calculate the duration of the coupon bond if the coupon were 12% instead of 8%.The explanation of the reason of the duration of the coupon bond being lower is to be given.

Spreadsheet 11.1

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. A zero-coupon bond is a bond where the face value is repaid at the time of maturity.

Yield to maturity means the discount rate which makes the present payments from the bond equal to the price, in simple terms it is the average rate of return a holder can expect from that bond. Duration is a measure of the sensitivity of the price -- the value of principal -- of a bond to a change in interest rates. The duration of a zero-coupon bond is equal to the time to maturity of the bond.

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You are considering two bonds. Bond A has a 9% annual coupon while Bond B has a 6% annual coupon. Both bonds have a 7% yield to maturity, and the YTM is expected to remain constant. Which of the following statements is CORRECT? State your reason for the answer. The price of Bond A will decrease over time, but the price of Bond B will increase over time. The price of Bond B will decrease over time, but the price of Bond A will increase over time. The prices of both bonds will remain unchanged. The prices of both bonds will increase by 7% per year. The prices of both bonds will increase by 9% per year.

Which of the following statements is CORRECT? a. The shorter the time to maturity, the greater the change in the value of a bond in response to a given change in interest rates, other things held constant. b. You hold two bonds. One is a 10-year, zero coupon, bond and the other is a 10-year bond that pays a 6% annual coupon. The same market rate, 6%, applies to both bonds. If the market rate rises from the current level, the zero coupon bond will experience the smaller percentage decline. c. You hold two bonds, a 10-year, zero coupon, issue and a 10-year bond that pays a 6% annual coupon. The same market rate, 6%, applies to both bonds. If the market rate rises from its current level, the zero coupon bond will experience the larger percentage decline. d. The longer the time to maturity, the smaller the change in the value of a bond in response to a given change in interest rates. e. The time to maturity does not affect…

Consider a 2-year U.S. treasury bond that pays a coupon of 10 in one year from now and a coupon and principal of 110 in two years from now. If the expected yield-to-maturity of the bond increases from 10% to 15%, then the price of the bond changes from _________. 100 to 91.87 109.09 to 104.34 90.09 to 83.18 The interest rate of a bond is fixed and so the price never changes.

Answer 2

Question

Chapter 16, Problem 21PS

Summary Introduction

(a)

To Discuss:

To use a spreadsheet to calculate the duration of the two bonds in Spreadsheet 11.1 if the market interest rate increases to 12%.The explanation of the reason of the fall in the duration of the coupon bond while the duration of the zero-coupon bond remaining unchanged is to be given.

Spreadsheet 11.1

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond.A zero-coupon bond is a bond where the face value is repaid at the time of maturity.

Yield to maturity means the discount rate which makes the present payments from the bond equal to the price, in simple terms it is the average rate of return a holder can expect from that bond. Duration is a measure of the sensitivity of the price -- the value of principal -- of a bond to a change in interest rates. The duration of a zero-coupon bond is equal to the time to maturity of the bond.

Summary Introduction

(b)

To Discuss:

To use the same spreadsheet to calculate the duration of the coupon bond if the coupon were 12% instead of 8%.The explanation of the reason of the duration of the coupon bond being lower is to be given.

Spreadsheet 11.1

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. A zero-coupon bond is a bond where the face value is repaid at the time of maturity.

Yield to maturity means the discount rate which makes the present payments from the bond equal to the price, in simple terms it is the average rate of return a holder can expect from that bond. Duration is a measure of the sensitivity of the price -- the value of principal -- of a bond to a change in interest rates. The duration of a zero-coupon bond is equal to the time to maturity of the bond.

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Answer 3

Question

Chapter 16, Problem 21PS

Summary Introduction

(a)

To Discuss:

To use a spreadsheet to calculate the duration of the two bonds in Spreadsheet 11.1 if the market interest rate increases to 12%.The explanation of the reason of the fall in the duration of the coupon bond while the duration of the zero-coupon bond remaining unchanged is to be given.

Spreadsheet 11.1

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond.A zero-coupon bond is a bond where the face value is repaid at the time of maturity.

Yield to maturity means the discount rate which makes the present payments from the bond equal to the price, in simple terms it is the average rate of return a holder can expect from that bond. Duration is a measure of the sensitivity of the price -- the value of principal -- of a bond to a change in interest rates. The duration of a zero-coupon bond is equal to the time to maturity of the bond.

Summary Introduction

(b)

To Discuss:

To use the same spreadsheet to calculate the duration of the coupon bond if the coupon were 12% instead of 8%.The explanation of the reason of the duration of the coupon bond being lower is to be given.

Spreadsheet 11.1

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. A zero-coupon bond is a bond where the face value is repaid at the time of maturity.

Yield to maturity means the discount rate which makes the present payments from the bond equal to the price, in simple terms it is the average rate of return a holder can expect from that bond. Duration is a measure of the sensitivity of the price -- the value of principal -- of a bond to a change in interest rates. The duration of a zero-coupon bond is equal to the time to maturity of the bond.

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Answer 4

Question

Chapter 16, Problem 21PS

Summary Introduction

(a)

To Discuss:

To use a spreadsheet to calculate the duration of the two bonds in Spreadsheet 11.1 if the market interest rate increases to 12%.The explanation of the reason of the fall in the duration of the coupon bond while the duration of the zero-coupon bond remaining unchanged is to be given.

Spreadsheet 11.1

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond.A zero-coupon bond is a bond where the face value is repaid at the time of maturity.

Yield to maturity means the discount rate which makes the present payments from the bond equal to the price, in simple terms it is the average rate of return a holder can expect from that bond. Duration is a measure of the sensitivity of the price -- the value of principal -- of a bond to a change in interest rates. The duration of a zero-coupon bond is equal to the time to maturity of the bond.

Summary Introduction

(b)

To Discuss:

To use the same spreadsheet to calculate the duration of the coupon bond if the coupon were 12% instead of 8%.The explanation of the reason of the duration of the coupon bond being lower is to be given.

Spreadsheet 11.1

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. A zero-coupon bond is a bond where the face value is repaid at the time of maturity.

Yield to maturity means the discount rate which makes the present payments from the bond equal to the price, in simple terms it is the average rate of return a holder can expect from that bond. Duration is a measure of the sensitivity of the price -- the value of principal -- of a bond to a change in interest rates. The duration of a zero-coupon bond is equal to the time to maturity of the bond.

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Answer 5

Chapter 16, Problem 21PS

Summary Introduction

(a)

To Discuss:

To use a spreadsheet to calculate the duration of the two bonds in Spreadsheet 11.1 if the market interest rate increases to 12%.The explanation of the reason of the fall in the duration of the coupon bond while the duration of the zero-coupon bond remaining unchanged is to be given.

Spreadsheet 11.1

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond.A zero-coupon bond is a bond where the face value is repaid at the time of maturity.

Yield to maturity means the discount rate which makes the present payments from the bond equal to the price, in simple terms it is the average rate of return a holder can expect from that bond. Duration is a measure of the sensitivity of the price -- the value of principal -- of a bond to a change in interest rates. The duration of a zero-coupon bond is equal to the time to maturity of the bond.

Summary Introduction

(b)

To Discuss:

To use the same spreadsheet to calculate the duration of the coupon bond if the coupon were 12% instead of 8%.The explanation of the reason of the duration of the coupon bond being lower is to be given.

Spreadsheet 11.1

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. A zero-coupon bond is a bond where the face value is repaid at the time of maturity.

Yield to maturity means the discount rate which makes the present payments from the bond equal to the price, in simple terms it is the average rate of return a holder can expect from that bond. Duration is a measure of the sensitivity of the price -- the value of principal -- of a bond to a change in interest rates. The duration of a zero-coupon bond is equal to the time to maturity of the bond.

Answer 6

Chapter 16, Problem 21PS

Summary Introduction

(a)

To Discuss:

To use a spreadsheet to calculate the duration of the two bonds in Spreadsheet 11.1 if the market interest rate increases to 12%.The explanation of the reason of the fall in the duration of the coupon bond while the duration of the zero-coupon bond remaining unchanged is to be given.

Spreadsheet 11.1

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond.A zero-coupon bond is a bond where the face value is repaid at the time of maturity.

Yield to maturity means the discount rate which makes the present payments from the bond equal to the price, in simple terms it is the average rate of return a holder can expect from that bond. Duration is a measure of the sensitivity of the price -- the value of principal -- of a bond to a change in interest rates. The duration of a zero-coupon bond is equal to the time to maturity of the bond.

Answer 7

Chapter 16, Problem 21PS

Summary Introduction

(a)

To Discuss:

To use a spreadsheet to calculate the duration of the two bonds in Spreadsheet 11.1 if the market interest rate increases to 12%.The explanation of the reason of the fall in the duration of the coupon bond while the duration of the zero-coupon bond remaining unchanged is to be given.

Spreadsheet 11.1

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond.A zero-coupon bond is a bond where the face value is repaid at the time of maturity.

Yield to maturity means the discount rate which makes the present payments from the bond equal to the price, in simple terms it is the average rate of return a holder can expect from that bond. Duration is a measure of the sensitivity of the price -- the value of principal -- of a bond to a change in interest rates. The duration of a zero-coupon bond is equal to the time to maturity of the bond.

Answer 8

Summary Introduction

(b)

To Discuss:

To use the same spreadsheet to calculate the duration of the coupon bond if the coupon were 12% instead of 8%.The explanation of the reason of the duration of the coupon bond being lower is to be given.

Spreadsheet 11.1

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. A zero-coupon bond is a bond where the face value is repaid at the time of maturity.

Yield to maturity means the discount rate which makes the present payments from the bond equal to the price, in simple terms it is the average rate of return a holder can expect from that bond. Duration is a measure of the sensitivity of the price -- the value of principal -- of a bond to a change in interest rates. The duration of a zero-coupon bond is equal to the time to maturity of the bond.

Answer 9

Summary Introduction

(b)

To Discuss:

To use the same spreadsheet to calculate the duration of the coupon bond if the coupon were 12% instead of 8%.The explanation of the reason of the duration of the coupon bond being lower is to be given.

Spreadsheet 11.1

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. A zero-coupon bond is a bond where the face value is repaid at the time of maturity.

Yield to maturity means the discount rate which makes the present payments from the bond equal to the price, in simple terms it is the average rate of return a holder can expect from that bond. Duration is a measure of the sensitivity of the price -- the value of principal -- of a bond to a change in interest rates. The duration of a zero-coupon bond is equal to the time to maturity of the bond.

Answer 10

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Answer 13

Ch. 16 - Prob. 1PS Ch. 16 - Prob. 2PS Ch. 16 - Prob. 3PS Ch. 16 - Prob. 4PS Ch. 16 - Prob. 5PS Ch. 16 - Prob. 6PS Ch. 16 - Prob. 7PS Ch. 16 - Prob. 8PS Ch. 16 - Prob. 9PS Ch. 16 - Prob. 10PS

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