Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. consider two bonds, both with 8% coupon rates (ass

Consider two bonds, both with 8% coupon rates (assume annual coupon payments) one with 10 years...

50.1K

Verified Solution

Question

Finance

Consider two bonds, both with 8% coupon rates (assume annualcoupon payments) one with 10 years to maturity and the other with20 years to maturity. Assume that current market rates of interestare 8%. Calculate the difference in the change of the price of thetwo bonds if interest rates decrease to 6% one year afterpurchasing the bond. Repeat the procedure assuming that interestrates increase to 10% one year after purchase. Explain the majorbond pricing principle that is being illustrated here

Answer & Explanation Solved by verified expert
4.1 Ratings (670 Votes)
Assuming that the face value of each bond is 100 Price of 10year bond today is calculated using the PV function in Excel with these inputs rate 8 market interest rate nper 10 10 years to maturity annual coupon payments each year pmt 100 8 annual coupon payment face value coupon rate fv 100 face value of the bond receivable on maturity PV is calculated to be 10000 The price of the bond today is 10000 Price of 20year bond today is calculated using the PV function in Excel with these inputs rate 8 market interest rate nper 20 20    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

Consider two bonds, both with 8% coupon rates (assume annualcoupon payments) one with 10 years to maturity and the other with20 years to maturity. Assume that current market rates of interestare 8%. Calculate the difference in the change of the price of thetwo bonds if interest rates decrease to 6% one year afterpurchasing the bond. Repeat the procedure assuming that interestrates increase to 10% one year after purchase. Explain the majorbond pricing principle that is being illustrated here

Other questions asked by students

Physics
1.2K views

A baseball leaves the bat 1.5m above the ground traveling at 100mph at an angle of...

General Management
1.2K views

A computer store sells four types of monitors: a 13-inch, a 15-inch, a17-inch and a 19-inch...

Advance Math
1.2K views

Lab Assignment Part B - Recurrence Intervals Data from the chart below was collected at the USGS...

Biology
1.2K views

Which of these provides evidence from developmental biology of a shared evolutionary history? A.Both snakes...

Biology
1.2K views

Which statement about the Calvin-Benson cycle is incorrect?Rubisco catalyzes the reaction between CO2 and RuBPFor...

Geometry
1.2K views

11 Experimental and theoretical probability Keisha rolled a number cube 20 times and got the...

Basic Math
1.2K views

1 cot 0 sin 0 1 Which of the following shows the key steps in...

Accounting
1.2K views

Havermill Company establishes a $400 petty cash fund on September 1. on September 30, the...

Accounting
1.2K views

Explain briefly (a) written representations, (b) internal control communications, and (c) management letters. In your...

Accounting
1.2K views

Please identify risks or threats (possible problems), and controls (minimizing possible problems) of each sub-process...

Accounting
1.2K views

Nova Company's total overhead cost at various levels of activity are presented below: Assume that...

Accounting
1.2K views

Florek Inc. produces and sells a single product. The company has provided its contribution format...