You are considering an investment in two different bonds. One bond matures in six years and has
Question:
You are considering an investment in two different bonds. One bond matures in six years and has a face value of $1,000. The bond pays an annual coupon of 6% and has an 8% yield to maturity. The other bond is a 5-year zero coupon bond with a face value of $1,000 and has a yield to maturity of 8%.
What is the price of each bond?
- What is the duration of each bond?
If the yield to maturity of each bond were to immediately increase to 11%, what would be the percentage change (including the correct sign) in the price of each bond (from the price found in part a)?
If the yield to maturity of each bond were to immediately decrease to 5%, what would be the percentage change (including the correct sign) in the price of each bond (from the price found in part a)?
Please show all work and provide explanations.
Introduction to Operations Research
ISBN: 978-1259162985
10th edition
Authors: Frederick S. Hillier, Gerald J. Lieberman