Question: A 3 year, $1000 par value bond pays a $60 coupon annually. The YTM is 5%. a) What is the bond price? b) What percentage

A 3 year, $1000 par value bond pays a $60 coupon annually. The YTM is 5%.

a) What is the bond price?

b) What percentage of the bond price is attributable to the terminal year cash flow?

c) What is the duration?

d) How many years of duration is attributable to the terminal year cash flow?

e) What is modified duration?

f) If interest rates increase 25 basis points, what is the dollar change in bond price forecast by modified duration?

g) Computing the new bond price using the new YTM, what is the actual change in the bond price

Step by Step Solution

★★★★★

3.39 Rating (155 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a Using the bond pricing formula the bond price can be calculated as Bond Price Coupon Payment YTM x 1 1 1 YTMn Par Value 1 YTMn where n is the number of years to maturity Plugging in the values given ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Use information on the endpapers of this book to calculate the average density of the Earth. Where does the value fit among those listed in Tables 1.5 and 14.1? Look up the density of a typical...

Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...

Create spreadsheet models to price coupon bonds, compute duration, and examine reinvestment risk. The purpose of this assignment is to get comfortable with basic spreadsheet modeling and to reinforce...

The duration of an 11-year, $1,000 Treasury bond paying a 10 percent semiannual coupon and selling at par has been estimated at 6.763 years. a. What is the modified duration of the bond? What is the...

1. A 3 year, $1000 par value bond pays a $60 coupon annually. The YTM is 5%. a) What is the bond price? b) What percentage of the bond price is attributable to the terminal year cash flow? c) What is...

A 3 year, $1000 par value bond pays a $60 coupon annually. The YTM is 5%. a) What is the bond price? b) What percentage of the bond price is attributable to the terminal year cash flow? c) What is...

A 3 year, $1000 par value bond pays a $60 coupon annually. The YTM is 5%. f) If interest rates increase 25 basis points, what is the dollar change in bond price forecast by modified duration? g)...

A 3 year, $1000 par value bond pays a $60 coupon annually. d) How many years of duration is attributable to the terminal year cash flow? e) What is modified duration? f) If interest rates increase 25...

Finance 7. A bond offers a coupon rate of 7% and a yield to maturity of 6%, what is the semi-annual payment received by bondholders? a. $30 b. $35 c. $60 d. $70 8. A 15 year, $1,000 par value bond...

Finance 9. A 20 year, $1,000 par value bond has a 6.5% coupon rate. Coupons are paid annually. What is the yield to maturity on the bond if the price is $1,057 ? a. 6.00% b. 6.35% c. 6.50% d. 6.63%...

This should be the primary objective of a firm as it may actually be the most beneficial for society in the long run. A). Minimizing layoffs B). Maximizing market share C). Minimizing costs D)....

(-7/25) (-5/21) Perform the indicated operation by hand.

Find the limit . lim x 4 x 2 5 x + 4 / x 4

Your friend, the owner of a service company, has asked to you to assist with certain aspects of a cash flow budget being prepared for an upcoming meeting. The company is preparing a Cash Flow...

For each of the independent case identify the following: a type of ethics threat (if it exists). b- Type of required ethic that would be affected. C- The appropriate response that should be taken by...

A household has assets worth $2 million invested in Treasury Bonds earning 5%/year. As an alternative investment, it could purchase a parcel of non-dividend paying stock worth the same amount but...

Is there a good rationale for raising $30 to $60 million at the time of the case? What do you estimate the companys value (total and per share) to be as of March 2007? This does not mean looking back...

Write the symbolic representation for f(x,y) given that f computes the indicated inequality.The square root of the sum of x and twice y.A)f(x,y)=2xy2B)f(x,y)=x2y2C)f(x,y)=x22y2D)f(x,y)=x22y4

Harris Company manufactures and sells a single product. A partially completed schedule of the companys total and per unit costs over the relevant range of 30,000 to 50,000 units produced and sold...

The following cost data relate to the manufacturing activities of Chang Company during the just completed year: Actual manufacturing overhead costs incurred: Indirect materials...

Superior Markets, Inc., operates three stores in a large metropolitan area. A segmented absorption costing income statement for the company for the last quarter is given below: The North Store has...

Consider the following set of data: y x1 x2 x3 x4 61 37 18 2 13 37 25 5 4 10 22 23 12 7 4 48 12 6 2 15 66 34 14 3 25 y x1 x2 x3 x4 69 35 21 2 20 24 23 7 6 9 68 35 15 3 14 65 37 19 2 19 45 30 12 3 12...

You are given the following set of data: y x1 x2 x3 33 9 192 40 44 11 397 47 34 10 235 37 60 13 345 61 20 11 245 23 30 7 235 35 y x1 x2 x3 45 12 296 52 25 9 235 27 53 10 295 57 45 13 335 50 37 11 243...

The National Association of Realtors Existing-Home Sales Series provides a measurement of the residential real estate market. One of the measurements it produces is the Housing Affordability Index...