Mathematics, 02.11.2019 06:31 brmoen1392

Both bond sam and bond dave have 6 percent coupons, make semiannual payments, and are priced at par value. bond sam has five years to maturity, whereas bond dave has 18 years to maturity. if interest rates suddenly rise by 2 percent, what is the percentage change in the price of bond sam and bond dave?

Answers: 3

Show answers

Answers

Answer from: harleycochran2ovyt3n

Bond Sam = -8.11%

Bond Dave = -18.9%

Step-by-step explanation:

Let the face value of bonds be $1,000.

Bond Sam :

Coupon rate = 6%

yield = 6%

The number of years to maturity = 5 years

market interest rate suddenly rise by 2% = 8%

To calculate the present value of the bond, find the semiannual coupon payment.

Semi-annual coupon payment = Face value × Annual coupon rate × $[\frac{6}{12}]$

= 1,000 × 6% × $[\frac{6}{12}]$

= $30

Now convert the annual market interest rate to semi-annual interest rate.

Semi-annual interest rate = $[\frac{\text{annual market rate of interest}}{2}]$

= $[\frac{0.08}{2}]$

= 4%

Number of years converted in semi-annual periods

5 years = 5 × 2 = 10 semiannual periods

Now use excel and select "fx" and choose "PV" and enter the values into the formula :

PV = (rate,nperiod,pmt,fv)

= (4%,10,-30,-1000)

= $918.89

Change in price of bond Sam = $\frac{918.89-1000}{1000}$

= -0.08111 or -8.11%

Bond Dave :

Coupon rate = 6%

yield = 6%

The number of years to maturity = 18 years

market interest rate suddenly rise by 2% = 8%

To calculate the present value of the bond, find the semiannual coupon payment.

Semi-annual coupon payment = Face value × Annual coupon rate × $[\frac{6}{12}]$

= 1,000 × 6% × $[\frac{6}{12}]$

= $30

Now convert the annual market interest rate to semi-annual interest rate.

Semi-annual interest rate = $[\frac{\text{annual market rate of interest}}{2}]$

= $[\frac{0.08}{2}]$

= 4%

Number of years converted in semi-annual periods

18 years = 18 × 2 = 36 semiannual periods

Now use excel and select "fx" and choose "PV" and enter the values into the formula :

PV = (rate,nperiod,pmt,fv)

= (4%,36,-30,-1000)

= $810.92

Change in price of bond Sam = $\frac{810.92-1000}{1000}$

= -0.18908 or -18.9%

Percentage change in the price of Bond Sam -8.11% and Bond Dave -18.9%.

Answer from: Quest

Many things that seem threatening in the dark become welcoming when we shine light on them

Answer from: Quest

answer: give more info

step-by-step explanation:

Another question on Mathematics

Mathematics, 21.06.2019 17:10

Jessica and martha each have a bag of cookies with unequal quantities. they have 30 cookies total between the two of them. each of them ate 6 cookies from their bag. the product of the number of cookies left in each bag is not more than 80. how many more cookies will jessica have martha? if x represents the number of cookies jessica started with, complete the statements below.the inequality that describes the relationship between the number of cookies each one of them has is x^2 - x +224 > = 0.jessica has at least cookies more than martha.

Answers: 3

Answer

Mathematics, 21.06.2019 18:00

Jose predicted that he would sell 48 umbrellas. he actually sold 72 umbrellas. what are the values of a and b in the table below? round to the nearest tenth if necessary

Answers: 2

Answer

Mathematics, 21.06.2019 18:30

Ricky takes out a $31,800 student loan to pay his expenses while he is in college. after graduation, he will begin making payments of $190.66 per month for the next 30 years to pay off the loan. how much more will ricky end up paying for the loan than the original value of $31,800? ricky will end up paying $ more than he borrowed to pay off the loan.

Answers: 1

Answer

Mathematics, 21.06.2019 22:30

Find the area of the region that is inside r=3cos(theta) and outside r=2-cos(theta). sketch the curves.

Answers: 3

Answer

You know the right answer?

Both bond sam and bond dave have 6 percent coupons, make semiannual payments, and are priced at par...

Questions