Information on four bonds is presented in the table. Each bond has a face value of...

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Finance

Information on four bonds is presented in the table. Each bondhas a face value of $100. Each bond that pays a coupon pays itannually.
BOND MATURITY (YEARS) COUPON RATE YTM
A 1 0% 5%
B 5 6% 7%
C 10 10% 9%
D 20 0% 8%
a) Compute the percentage change in the price of each bondassuming its yield to maturity (YTM) increases by 1%, for example,from 5% to 6%.
b) If you think that bond yields generally will decrease in thenext 3 months, which bond would you prefer to own now? Brieflyexplain.

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3.6 Ratings (322 Votes)

Answer aWe calculate current price using excel formula PVPrice of Bond A PV rate nper pmt fv type PV 5 1 01000 See Answer

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Information on four bonds is presented in the table. Each bondhas a face value of $100. Each bond that pays a coupon pays itannually.BONDMATURITY (YEARS)COUPON RATEYTMA10%5%B56%7%C1010%9%D200%8%a) Compute the percentage change in the price of each bondassuming its yield to maturity (YTM) increases by 1%, for example,from 5% to 6%.b) If you think that bond yields generally will decrease in thenext 3 months, which bond would you prefer to own now? Brieflyexplain.

BOND	MATURITY (YEARS)	COUPON RATE	YTM
A	1	0%	5%
B	5	6%	7%
C	10	10%	9%
D	20	0%	8%