AuthorTopic: Fixed Income- Valuation 2 questions...help please!!!
seon
@2014-05-02 13:09:59
Hi guys,

i cant get to the correct numbers of the following 2 questions. Could you be so kind to help me with them? I see the solutions but i cant get there with the way i am calculating it!
For both solutions i used the bond calculation method on the HP12C:

The price of a 15-year, semi-annual pay, 8% coupon bond increases by 9.53% if the bond's yield to maturity decreases by 100 basis points from 7% to 6%. The percentage change in the bond's price caused by a decrease in yield to maturity from 10% to 9% is:

A. 7.89%
B. 8.21%
C. 8.54%

To yield 10%, this bond's price is \$846.28. To yield 9%, this bond's price is \$918.55.

2)Consider a 5-year, 5% coupon, semi-annual payment bond and a 10-year, 5% coupon, semi-annual
payment bond. The price and required return of both are \$1,000 and 5%, respectively. If the level of
market rates increases such that both bonds have required returns of 6%:

A. the price of the 5-year bond will decrease by 4.49%
B. the price of the 10-year bond will decrease by 7.36%
C. the price of the 5-year bond will decrease by 4.26%

The new price of the 5-year bond is \$957.35, and the new price of the 10-year bond is \$925.61.

Thanks a lot for your help.

Best,

Sebas