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QUESTION
You are considering an investment in two different bonds.One bond matures in six years and has a face value of $1,000.The bond pays an annual coupon...
You are considering an investment in two different bonds. One bond matures in six years and has a face value of $1,000. The bond pays an annual coupon of 8.5% and has a 7% yield to maturity. The other bond is a 5-year zero coupon bond with a face value of $1,000 and has a yield to maturity of 7%.
- What is the price of each bond?
- What is the duration of each bond?
- If the yield to maturity of each bond were to immediately increase to 10%, what would be the percentage change (including the correct sign) in the price of each bond (from the price found in part a)?
- If the yield to maturity of each bond were to immediately decrease to 4%, what would be the percentage change (including the correct sign) in the price of each bond (from the price found in part a)?
