Bond Coupon Rate Maturity Year Par Value 1 7.5% 2032 1000 2 8.25% 2029 1000 3 6.0% 2023 1000
a.) Assuming that bonds pay annual coupon, estimate the marketvalue of each bond at a discount rate of 7.4%
b.) Assuming that bonds pay annual coupon, what will happen tothe price of each bond if market rates suddenly decrease from 7.4%to 6.2%? Which of the three bonds will have the greatest percentagechange in price?
c.) Assuming that bonds pay annual coupon, what will happen tothe price of each bond if market interest rates suddenly increasefrom 7.4% to 8.6%? Which of the three bonds will have the greatestpercentage change in price?
d.) Assuming that bonds pay annual coupon. Also, the bonds arecurrently trading in the market at $973.63, $932.37, and $1,075.58respectively. What is the yield-to-maturity of each bond?
e.) Assuming that bonds pay annual coupon. Suppose Rheapurchased bond 1 today at a price of $973.63, but would like tosell the bond in 7 years at which time similar bonds yield 6.753%.At what price can Rhea expect to sell the bonds? If she sells thebond in 7 years at the price computed, what would be her realizedrate of return over her holding period?
f.) Repeat analysis in parts a)-e) assuming bonds paysemi-annual coupon.
| Bond | Coupon Rate | Maturity Year | Par Value |
|---|---|---|---|
| 1 | 7.5% | 2032 | 1000 |
| 2 | 8.25% | 2029 | 1000 |
| 3 | 6.0% | 2023 | 1000 |
a.) Assuming that bonds pay annual coupon, estimate the marketvalue of each bond at a discount rate of 7.4%
b.) Assuming that bonds pay annual coupon, what will happen tothe price of each bond if market rates suddenly decrease from 7.4%to 6.2%? Which of the three bonds will have the greatest percentagechange in price?
c.) Assuming that bonds pay annual coupon, what will happen tothe price of each bond if market interest rates suddenly increasefrom 7.4% to 8.6%? Which of the three bonds will have the greatestpercentage change in price?
d.) Assuming that bonds pay annual coupon. Also, the bonds arecurrently trading in the market at $973.63, $932.37, and $1,075.58respectively. What is the yield-to-maturity of each bond?
e.) Assuming that bonds pay annual coupon. Suppose Rheapurchased bond 1 today at a price of $973.63, but would like tosell the bond in 7 years at which time similar bonds yield 6.753%.At what price can Rhea expect to sell the bonds? If she sells thebond in 7 years at the price computed, what would be her realizedrate of return over her holding period?
f.) Repeat analysis in parts a)-e) assuming bonds paysemi-annual coupon.
