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Author | Topic: Fixed Income- Valuation 2 questions...help please!!! |
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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% Correct Answer: C 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% Correct Answer: C 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 |