Both Bond Sam and Bond Dave have 8 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 3 years
1 answer:
Answer: -12.1%
Explanation:
Bond Sam was priced at Par which means it could have been priced at $1,000 and its yield was the same as the coupon rate of 8%.
If interest rates rise by 5%, the yield becomes:
= 8% + 5%
= 13%
Price of bond is attached:
Yield = 13% /2 = 6.5% per semiannual period
Coupon = 8% * 1,000 * 0.5 = $40 per semi annual period
Period till maturity = 3 * 2 = 6 semiannual periods
Price = $878.97
Percentage change in price:
= (878.97 - 1,000) / 1,000 * 100%
= -12.1%
You might be interested in
Answer
The answer and procedures of the exercise are attached in image.
Explanation
Please consider the data provided by the exercise. If you have any question please write me back. All the exercises are solved in a single sheet with the formulas indications.
