1. A bond that pays annual interest has a promised yield of 6 percent and a price of $1,025. Annual interest rates are now projected to fall by 50 basis points. The term of the bond is six years. What is the estimated new bond price after the interest rate change? (Be careful of your rolling.)

2. Three years to maturity, an investor purchases a $10,000 nominal TIPS security with a 4.25 percent semi-annual coupon. If annual inflation is 2.50 percent each year during the investor's holding period, what is the core value of TIPS when it comes to maturity?

Answer rating: 100% (QA)

1 To estimate the new bond price we first need to calculate the bonds new yield which is 55 percent ... View the full answer