Suppose today is the last day of March 2023 and you are a trader at...
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Suppose today is the last day of March 2023 and you are a trader at a Wallstreet bond trading firm. You trade in a bond called A that matures in April 2026 with a face value of $1000. Bond A has a coupon rate of 18% on an annual basis. Coupons are paid out every quarter. A) What is the value of the regular coupon payments you get from bond A? B) Assuming an annual interest rate of 6%, what is the value of the bond? C) What is the value of the annuity implicit in the bond? D) Consider a bond B with the same coupon rate, the same maturity and face value but with annual coupon payments. What is the price of this bond A, given the discount rate stays at 6%? E) If interest rates increase by 1%, what is the percentage change in the price of bond B, given the current bond price you calculated in D)? (Give a precise answer in basis points.)
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