An investor purchased the following 5 bonds. Each bond had a par value of $1,000

Question

An investor purchased the following 5 bonds. Each bond had a par value of $1,000 and an 9% yield to maturity on the purchase day. Immediately after the investor 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 the nearest cent or to two decimal places.

Price @ 9%           Price @ 6%         Percentage Change 10-year, 10% annual coupon $   $      % 10-year zero $   $      % 5-year zero $   $      % 30-year zero $   $      % $100 perpetuity $   $      %

Explanation / Answer

PV of a redemption value = Face value/(1+k)^n

PV of interest payment = int pay*(1-(1+k)^-n/k)

Perpetuity = 100/0.09

1000 FV 100 int payment 10 Time period 9.0% k 0.09        1.090

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