An investor purchased the following 5 bonds. Each of them had a face value of $1

Question

An investor purchased the following 5 bonds. Each of them had a face value of $1,000 and 8% yield to maturity on the purchase day. Immediately after she purchased them, interest rates fell and each then had a new YTM of 6%. What is the percentage change in price for each bond after the decline in interest rates? Fill in the following table. Round your answers to two decimal places.


Price @ 8% Price @ 6% Percentage Change

10-year, 10% annual coupon
10-year zero
5-year zero
30-year zero
$100 perpetuity

Explanation / Answer

Hi, If you like my answer rate me first...that way only I can earn points. Thanks 1) 10 year, 10% annual coupon See Price @ 8% = $1134.20 = 100*(1-1.08^-10)/0.08 + 1000*1.08^-10 Price @ 6% = $1294.40 = 100*(1-1.06^-10)/0.06 + 1000*1.06^-10 % change = ($1134.20 - 1294.40)/1134.20 = -14.12% 2) 10 year, zero See Price @ 8% = $463.20 = 1000*1.08^-10 Price @ 6% = $558.40 = 1000*1.06^-10 % change = ($463.20 - 558.40)/463.20 = -20.55% 3) 5 year, zero See Price @ 8% = $680.58 = 1000*1.08^-5 Price @ 6% = $747.26 = 1000*1.06^-5 % change = (680.58 - 747.26)/680.58 = -9.80% 4) 30 year, zero See Price @ 8% = $99.38 = 1000*1.08^-30 Price @ 6% = $174.11= 1000*1.06^-30 % change = ($99.38 - 174.11)/99.38 = -75.20% 5) $100 Perpetuity See Price @ 8% = $1250 = 100/0.08 Price @ 6% = $1666.67= 1000/0.06 % change = ($1250 - 1666.67)/1250 = -33.33%

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