An investor purchased the following 5 bonds. Each of them had a 8percent yield t

Question

An investor purchased the following 5 bonds. Each of them had a 8percent yield to maturity on the purchase day. Immediately aftershe purchased them, interest rates fell and each then had a new YTMof 6 percent. What is the percentage change in price for each bondafter the decline in interest rates? Fill in the followingtable:

Price@ 8 % Price @ 7% Percentage Change
10 year, 10% annualcoupon _______ _______ _______
10-year zero _______ _______ _______
5-year zero _______ _______ _______
30-yea zero _______ _______ _______
100perpetuity _______ _______ _______

Explanation / Answer

1. 1134.20 1294.40 14.12% 2. 463.19 558.39 20.55% 3. 680.58 747.26 14.21% 4. 99.38 174.11 75.20% 5. 1,250 1666.67 33.33% Calculations were done with a TI BAII Plus Calculator

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