Bond X is a 6% coupon (paid semi-annually), 2-year bond with a face value of $100. 

Bond Y is a 4% coupon (paid semi-annually), 2-year bond with a face value of $100. 

Bond Z is a 5% coupon (paid semi-annually), 3-year bond with a face value of $100. 

The yield curve is flat at 8% per annum:

 i) Compute the current price of bond X. 

ii) Compute the new price of bond X if the yield curve falls to 5% and if the yield curve jumps to 8%. 

iii) Compute the current price of bond Y.

iv) Compute the new price of bond Y if the yield curve falls to 3%. What is the percentage price change?

 v) Compute the current price of bond Z. 

vi) Compute the new price of bond Z if the yield curve falls to 4%. 

What is the percentage price change? How does it compare to the price change ?

Answer rating: 100% (QA)

i To compute the current price of Bond X we need to discount each of its cash flows using the yield to maturity YTM of 8 per annum The coupon payments are semiannual so we need to divide the annual co... View the full answer