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Question;1) What is the current value of a $1000 par value 10 year bond with a 7% couponrate with interest paid annually if the current market interest rate is 7.75%?2) What is the current value of a $1000 par value 10 year zero coupon bond if thecurrent market interest rate is 7.75%3) What is the current value of a $1000 par value 12 year bond with a coupon rateof 8% with semi-annual payments if the current market interest rate is 6.9%?4) What is the current value of a 12 year bond with a coupon rate of 8% withquarterly payments if the current market interest rate is 6.9%?5) What is the Yield to Maturity (YTM) and Yield to Call (YTC) for a bond whichis currently priced at 1030 if the bond has a coupon of 6%, matures in 8 years butcould be called at a price of 1010 in 4 years. Interest is paid annually6 a) Calculate the Value of the Bonds under the following assumptions:Principal = 1000Initial Market Interest Rate = 7%Maturity3 Yr15 yr4% couponPeriod 17% coupon10% couponMarket Interest Rate changes to 6%3 Yr15 yr4% couponPeriod 27% coupon10% coupon% Change in Value from Period 1 to 24% coupon7% coupon10% coupon6b) What do you conclude about the relative sensitivity of bond prices to changes ininterest rate?1) Longer maturities relative to shorter maturities?2) High coupon bonds relative to lower coupon bonds?7a) Calculate the Macaulay Duration for a 6% bond with 5 years to maturity if themarket interest rate is 6% if interest is paid annually.7b) What do you think will happen to the Macaulay Durationof the bond in 7a ifthe market discount rate is higher?7c) Calculate the Modified Duration of the bond.7d) Assume that market interest rates rose from 6% to 6.1%. How much would theprice of the bond change?1) Using the Modified Duration estimate?2) Directly calculating the new price and comparing it with the original price

 

Paper#50583 | Written in 18-Jul-2015

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