Bond Example #$1$

Bonds A and B are both discount bonds with face value of $$100.$

Bond A has a maturity of $10$ years

Bond B has a maturity of $4$ years.

Assume that yield on both bonds is approximately $5\%.$

Suppose investors form the following expectations about yields on both bonds in the very near future $($assume no change in maturity after the yield change$).$

Probability Change in yield

$0\mathrm{.}5$ no change

$0\mathrm{.}25$ increase by $1$ percentage point

$0\mathrm{.}25$ decrease by $1$ percentage point

Flag question: Question $1$

Question $10\mathrm{.}48$ pts

Refer to Bond Example $1$ Calculate the expected percent change in price of bond A

$2\mathrm{.}25$

Flag question: Question $2$

Question $20\mathrm{.}48$ pts

Refer to Bond Example $1$ Calculate the standard deviation of percent change in prices of bond B$.$ Enter as a percent, round to two decimal places and do not enter a $\%$ sign.

Flag question: Question $3$

Question $30\mathrm{.}48$ pts

Refer to Bond Example $1$ Calculate the standard deviation of percent change in price of bond A$.$ Enter as a percent, round to two decimal places and do not enter a $\%$ sign.

Flag question: Question $4$

Question $40\mathrm{.}48$ pts

Refer to Bond Example $1$ Expected percent change in price for bond A is $-----$ relative to bond B and bond A is $------$ than bond B$.$

Group of answer choices

higher$/$less risky

Almost the same$/$risker

lower$/$less risky

almost the same$/$less risky

higher$/$risker

Flag question: Question $5$

Question $50\mathrm{.}48$ pts

Refer to Bond Example $1$ Calculate the price of bond A Round to two decimal places and do not enter a $ sign.

Flag question: Question $6$

Question $60\mathrm{.}48$ pts

Refer to Bond Example $1$ Calculate the price of bond B Round to two decimal places and do not enter a $ sign.

Flag question: Question $7$

Question $70\mathrm{.}48$ pts

Refer to Bond Example $1$ What is the duration of bond A$?$