An 8% coupon bond with a par value of $100 matures in 6 years, and is selling at $95.51 with a yield of 9%. Exacly one year ago this bond sold at a price of $90.26 with a yield of 10%. The change in price attributable to the change in maturity = ? sorry, I don’t have choices of a, b, c, d. I know the answer is: $1.03, but I have no idea how to compute the anser. Any suggestions?
Last Year PMT= 8 FV=100 N=7 PV=90.26 I/Y=10 This Year PMT=8 FV=100 N=6 PV=95.51 I/Y=9 here two parameters have changed N due to passage of time I/Y due interest rate change the question wants you to find the change in the PV attributable to the change in maturity only. so use the following to calculate PV if only the time had passed and no change in the yield had happened. PMT=8 FV=100 N=6 PV’ =??(91.28) I/Y=10(same as last year) so PV(last)-PV’ = 1.03
reema, thank you very much. that is the answer I am looking for. Also, what is the answer to the callable bond question that you posed? I thought the anser was C, but I sure would like to know what the answer is. thanks again
I was doing it assuming it’s semi-annual bond and got different answer. In exam, how do we differentiate between annual coupon and semi-annual coupon? Any thoughts? Thanks in advance. Cheers.
Unless they mention it to be a treasury or explicitly mention semi-annual coupons i think it would be safe to assume annual payments. what do the others think?
From what I understand (which isn’t much) is that every question at some point indicates whether payments are semi or annual, and if they don’t indicate that information, then payments are annual
more often that not – default behavior is semi-annual payment of coupon. If otherwise - they mention that it is Quarterly pay or Annual pay, definitely.