Suppose that a bond has a face value of $1000, a coupon rate of 4% and...

 

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Suppose that a bond has a face value of $1000, a coupon rate of 4% and a maturity of 4 years. The bond makes annual coupon payments. Calculate the bond's price. a/ If the yield to maturity is 4%. b/ If the yield to maturity is 5%. c/ If the yield to maturity is 3%. From the found results explain the important relationship: ▪ If yield > coupon rate, P....... face value ▪ If yield = coupon rate, P....... face value ■ If yield < coupon rate, P....... face value These results demonstrate that there is an between yields and bond prices. ▪ When yield rise, bond price (fall/rise) ▪ When yield fall, bond price (fall/rise) ..... relationship Suppose that a bond has a face value of $1000, a coupon rate of 4% and a maturity of 4 years. The bond makes annual coupon payments. Calculate the bond's price. a/ If the yield to maturity is 4%. b/ If the yield to maturity is 5%. c/ If the yield to maturity is 3%. From the found results explain the important relationship: ▪ If yield > coupon rate, P....... face value ▪ If yield = coupon rate, P....... face value ■ If yield < coupon rate, P....... face value These results demonstrate that there is an between yields and bond prices. ▪ When yield rise, bond price (fall/rise) ▪ When yield fall, bond price (fall/rise) ..... relationship

Answer rating: 100% (QA)

a If the yield to maturity is 4 the bonds price can be calculated using the formula P F ... View the full answer