An 8% corp bond with a par value of $100 matures in 6 years and is selling at $95.51 with a yield of 9%. Exactly one year ago this bond sold at a price of $90.26 with a yield of 10%. The bond pays annual interest. The change in price attributable to the change in maturity is closest to: A. $0.54. B. $1.03. C. $9.22. D. $5.25.
Change in price = yield efffect + maturity effect yield effect = +ve maturity effect = +ve total change in price - 95.51-90.26 = 5.25 so answer has to be between A and B. caclulate the duration of the bond when its at 10% shock the interest 1% down so you get price at 9% = 94.96 At this point i wouldn’t even compute the duration, i’d just say the Answer is A
what is the answer on this one. I would definitely mark this as A in exam.
Answer is B. Will someone show me how?
wow, I am gonna bomb on FI tooo now. amazing. give me great news.
Well I just bombed the sample practice CFA Exam. Give me a broom, finance is not for me obviously!
C,D are out of question. To get maturity effect on price, simply deduct yield effect N=6, I/Y=10, PMT=8, FV=100 --> PV = 91.29, this is bond price when it is 6 years to maturity and yield is 10% one year later, price is 90.26, so $1.03 i(91.29-90.26) is attributed by maturity change.
Guys, do the FV of 96.26 for 5 year and you get 96.523 Difference between 96.523-95.51=1.03
Why did you do N = 6 I did N = 7 PMT = 8 FV = 100 I=9%; pv = 94.96
If the bond would have remained at the same YTM, the value of the bond, one year later, would have been: N=6, I/Y=10, PMT=8, FV=100, CPT PV=91.2895 the increase due to maturity: 91.2895-90.26=1.0295~1.03
PV of the bond for 7 yrs to maturity = 94.96 PV of the bond for 6 yrs to maturity = 95.51 Maturity difference = 55 cents.
easy B Just rule out the other answers
No, use YTM of 10%, not the new 9%. The qustion asks for the increase in bond’s value due to getting closer to maturity, eliminate the effect of the decease in interest rate.
map1 Wrote: ------------------------------------------------------- > No, use YTM of 10%, not the new 9%. The qustion > asks for the increase in bond’s value due to > getting closer to maturity, eliminate the effect > of the decease in interest rate. Ouch!! I need to read the question better. damn!!
N=6 I/Y=10% PMT=8 FV=100 CPT PV N=7 I/Y=10% PMT=8 FV=100 CPT PV get the difference