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A bond trader purchased each of the following bonds at a yield to maturity of 9%. Immediately

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A bond trader purchased each of the following bonds at a yield to maturity of 9%. Immediately after she purchased the bonds, interest rates fell to 8%. What is the percentage change in the price of each bond after the decline in interest rates? Fill in the following table: (Assume semiannual compounding.)

Percentage Change Price @ 9% Price @ 8% 10-year, 10% coupon 10-year zero 20-year zero ||

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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Percentage Change Price @ 9% Price @ 8% 10-year, 10% coupon 10-year zero 20-year zero ||

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Related Book For  answer-question
Financial Management Theory And Practice

Financial Management Theory And Practice

ISBN: 978-0176583057

3rd Canadian Edition

Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason

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Bond valuation is the process of determining the worth of a bond. It is based on the present value of the bond\'s future cash flows, which include coupon payments and the return of the bond\'s face value (or \"principal\") at maturity. The discount rate used in the calculation is directly tied to prevailing interest rates, and a rise in interest rates will decrease the present value of the bond and thus lower its price. Conversely, a fall in interest rates will increase the present value of the bond and raise its price. Interest rates serve as a benchmark for determining the value of a bond, as they determine the discount rate used in the bond valuation calculation. The most commonly used measure of interest rates is the yield to maturity (YTM), which represents the internal rate of return of an investment in a bond if the investor holds the bond until maturity and receives all scheduled payments. Yield to maturity is a function of the coupon rate, the current market price of the bond, the face value of the bond, and the number of years remaining until maturity. By comparing the yield to maturity of a bond to prevailing market interest rates, an investor can assess the relative value of the bond.

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