3. A 9-year bond paying coupons annually has a yield of 10% and a duration of...
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3. A 9-year bond paying coupons annually has a yield of 10% and a duration of 7.194 years. If the market yield changes by 50 basis points, what is the percentage change in the bond's price? 4. a. Find the duration of a 6% coupon bond making annual coupon payments if it has three years until maturity and has a yield to maturity of 6%. b. What is the duration if the yield to maturity is 10%? 5. Repeat Problem 4, but now assume the coupons are paid semiannually. 6. a. The historical yield spread between AAA bonds and Treasury bonds widened dramatically during the financial crisis in 2008. If you believed that the spread would soon return to more typical historical levels, what should you have done? b. This would be an example of what sort of bond swap? 7. You predict that interest rates are about to fall. Which bond will give you the highest capital gain? a. Low coupon, long maturity. b. High coupon, short maturity. c. High coupon, long maturity. d. Zero coupon, long maturity. 3. A 9-year bond paying coupons annually has a yield of 10% and a duration of 7.194 years. If the market yield changes by 50 basis points, what is the percentage change in the bond's price? 4. a. Find the duration of a 6% coupon bond making annual coupon payments if it has three years until maturity and has a yield to maturity of 6%. b. What is the duration if the yield to maturity is 10%? 5. Repeat Problem 4, but now assume the coupons are paid semiannually. 6. a. The historical yield spread between AAA bonds and Treasury bonds widened dramatically during the financial crisis in 2008. If you believed that the spread would soon return to more typical historical levels, what should you have done? b. This would be an example of what sort of bond swap? 7. You predict that interest rates are about to fall. Which bond will give you the highest capital gain? a. Low coupon, long maturity. b. High coupon, short maturity. c. High coupon, long maturity. d. Zero coupon, long maturity.
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