Please provide clear calculations/explanations, as indicated, for each of the following questions:

a. What is the current price of a 10% coupon bond (with standard semiannual payments) if the yield-to-maturity on the bond is 5% (APR with semiannual compounding), the bond matures two years from today, and the bond has a face value of $1,000?

b. Describe two reasons the yield-to-maturity of the bond might increase. What will happen to the price of the bond when the YTM increases?

c. For a given change in yield-to-maturity (e.g., 100 bps), will a short-term or long-term bond have a bigger percentage change in price?

d. What is the relationship between coupon rates and yield-to-maturity for bonds selling

• at a premium?
• at a discount?
• at par value?

Answer rating: 100% (QA)

a To calculate the price of the bond we can use the formula Price Coupon Payment 1 YTM22 x number of ... View the full answer