A Treasury bond is offered with a face value of $100 per contract, a 10% coupon rate
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Question:
- A Treasury bond is offered with a face value of $100 per contract, a 10% coupon rate (paid semi-annually), and 5-years to maturity.
- (i) What is the bond price if the yield curve is flat at 10% per annum?
- (ii) What will be the new price of the bond if the yield curve rises to 11%?
- (iii) What will be the new price of the bond if the yield curve falls to 9%?
- (iv) Briefly explain what is a bond YTM, and what is the difference between YTM and the yield curve (spot curve). (v) Briefly explain the relationship between a bond YTM and its coupon rate.
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