Problem 5-16

Interest Rate Sensitivity

A bond trader purchased each of the following bonds at a yield to maturity of 9%. Immediately after she purchased the bonds, interest rates fell to 5%. What is the percentage change in the price of each bond after the decline in interest rates? Assume annual coupons and annual compounding. Fill in the following table. Do not round intermediate calculations. Round your answers to two decimal places.

Problem 5-21 Bond Valuation and Changes in Maturity and Required Returns

Suppose Hillard Manufacturing sold an issue of bonds with a 10-year maturity, a $1,000 par value, a 10% coupon rate, and semiannual interest payments.

1. Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 8%. At what price would the bonds sell? Round the answer to the nearest cent. $
2. Suppose that 2 years after the initial offering, the going interest rate had risen to 14%. At what price would the bonds sell? Round the answer to the nearest cent. $
3. Suppose that 2 years after the issue date (as in Part a) interest rates fell to 8%. Suppose further that the interest rate remained at 8% for the next 8 years. What would happen to the price of the bonds over time? I. The price of the bond will rise, approaching $1,000 at the maturity date. II. The price of the bond will decline, approaching $1,000 at the maturity date. III. The price of the bond will remain the same. -Select-

Problem 5-16 Interest Rete Sensitivity A bond trader purchased each or the yield to maturity of 9% Immediately after she purchased the bonds interest rates fell to 5% caupons and annual cornpournding. Fill in the followirng table. Do nat round intermediate calculatians. Round your answers to two decmal places. following bonds at a nat is the percentage change in the price or each bond ater the decline in interest rates? Assume annual Price @ 9% Price @ 5% Percentage Change 10-year, 10% annual coupon 10-year zern 5-year zerco 30-year zer Perpetulty, 100 annual coupon