a. What is the percentage change in the price of each bond if its yield to maturity

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a. What is the percentage change in the price of each bond if its yield to maturity falls from 44% to 33%?

b. Which of the bonds A?D is most sensitive to a 1% drop in interest rates from 44% to 33% and why? Which bond is least sensitive?

Assume annual compounding.

Related Book For answer-question

Fundamentals of Corporate Finance

ISBN: 978-0132148238

2nd edition

Authors: Berk, DeMarzo, Harford

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Posted Date: Jun 29, 2019 10:22 AM

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a. What is the percentage change in the price of each bond if its yield to maturity

Question:

Bond ABCD Coupon Rate (annual payments) 0% 0% 2% 8% Maturity (years) 7212 Bond ABCD Coupon Rate (annual payments) 0% 0% 2% 8% Maturity (years) 7212

Expert Answer:

a For zero coupon bonds Duration is same as tenure Duration for bond A 17 years ... View the full answer

Fundamentals of Corporate Finance

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