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Analysis of Price Risk in Bonds Fill in the table below following Step 1...

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Accounting

Analysis of Price Risk in Bonds

Fill in the table below following Step $1$ and $2,$ and answer the following questions in Step $3$ and $4 .$

Step $1 .$ Calculate the bond price.

Bond price can be calculated from the following formula:

Bond Price $=$ Annual Coupon $(\frac{1 - \frac{1}{(1 + Y T M)^{t}}}{Y T M}) +$ Face Value $\frac{1}{(1 + Y T M)^{t}}$

Step $2 .$ Calculate the rate of change in bond price $(%$ Change in Bond Price $) .$

$%$ Change in bond price can be calculated from the following formula:

$%$ Change $i n$ Price $= \frac{B o n d P r i c e a f t e r Y T M c h a n g e s}{B o n d P r i c e b e f o r e Y T M c h a n g e s} - 1$

Step $3 .$ Analyze the Price Risk in Bonds

Which bond has a higher price risk, bond $W$ or bond $x ?$ Why?

Which bond has a higher price risk, bond Y or bond Z $?$ Why?

Which bond has a higher price risk, bond W or bond Y $?$ Why?

Which bond has a higher price risk, bond X or bond Z $?$ Why?

Step $4 .$ Do the findings in Step $3$ always hold? Why?

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