Change in bond price formula
[DOC File]CHAPTER 7
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b. If interest rates increase, the relative price change of a 10-year coupon bond will be greater than the relative price change of a 10-year zero coupon bond. c. If a coupon bond is selling at par, its current yield equals its yield to maturity. d. Statements a and c are correct. e. None of the statements above is correct. Bond concepts Answer ...
[DOC File]Bond Features
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1) Bond prices move inversely with interest rates. 2) The longer the maturity of a bond, the more sensitive is it’s price to a change in interest rates. 3) The price sensitivity of any bond increases with it’s maturity, but the increase occurs at a decreasing rate. A 10-year bond is much more sensitive to changes in yield than a 1-year bond.
[DOCX File]Homework Assignment – Week 2
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Calculate the duration of a $1,000, 6% coupon bond with three years to maturity. Assume that all market interest rates are 7%. Consider the bond in the previous question. Calculate the expected price change in interest rates drop to 6.75% using the duration approximation. Calculate the actual price change using discounted cash flows.
[DOC File]Chapter 17
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% ( Price = Use the bond information above to determine the percentage change in price if interest rates increase by 50 basis points? Also show the dollar value change in price.-1.2831% * $1,078.72 = -$13.84. If rates rise by 50 basis points (.5%) the price will fall by approximately $13.84. C. Calculating Duration using the approximation ...
[DOC File]Solutions to Quiz 2 are after the questions
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Each pay interest of $120 annually. Bond A will mature in 5 years while bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 14%, _____. A) both bonds will increase in value but bond A will increase more than bond B . B) both bonds will increase in value but bond B will increase more than bond A
[DOC File]FUTURE VALUE AND PRESENT VALUE FORMULAS
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Calculate the price change in a semiannual municipal bond with a coupon rate of 9% and 10 years to maturity when the market rate of interest increases from 8.25% to 10.75% [$ 151.96] 55. The Banzai Auto Company has experienced a market re-evaluation lately due to a number of lawsuits.
[DOC File]INFLATION, CASH FLOWS AND DISCOUNT RATES
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Exactly the same computation would apply; the bond price would fall to $908.81. Now suppose that, instead of rising, the interest were to fall to 6%. The value of the bond would increase to: = + + … + = $1,104.81. Of course, if the bond were callable, say at $1,060, the value of the bond would be less.
[DOC File]The major formulas for present value (these will reappear ...
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It measures the sensitivity of bond price to change in interest rate, or yield to maturity. More specifically, it gives the percentage change in bond price due to 1% change in interest rate. D* = D* is also called. Volatility. Example: Problem Set #2, Q 13. Duration for Interest Rate Hedges: To hedge A with B: Delta = = Delta. gives the
[DOC File]1
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Formula, where A = The Multiplier, B = Initial Change in Taxes or Government Spending, and C = Overall Change in Real GDP or The Gap and you have to adjust for the change in Xn. 1 /1-MPC = 5; 5 x ($100 Billion + Xn). Since Xn = Exports – Imports or $20 Billion - $30 Billion, Xn = -$10 Billion.
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