Homework Ch 11.docx

Homework Ch 11.docx - Homework Chap 11 1 Consider 2 bonds...

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Homework Chap 11 1. Consider 2 bonds: all else being equal, which bond will have the higher duration, the bond with a 4% coupon rate or a bond with a 5% coupon rate? 4% coupon bond 2. Consider 2 bonds: all else being equal, which bond will have the higher duration, the bond with a 5% YTM or a 6%YTM? 5% YTM bond 3. What is the duration of a zero coupon bond maturing in 7 years? 7yrs 4. Using duration, calculate the new price for the following bond (show your work): Current price 95 7 x 50 = 350 Coupon 8% (1-.035) x 95 = \$91.68 Interest rates 9% Duration 7 Spreads widen 50 bps 5. Using duration, calculate the new price for the following bond (show your work): Current price 107 5 x 30 = 150 Coupon 8% (1+.015) x 107 = \$108.61 Interest rates 6% Duration 5 Spreads tighten 30 bps 6. You predict interest rates are about to fall. Which bond will give you the highest capital gain? A. low coupon, long maturity B. high coupon, short maturity C. high coupon, long maturity D. high coupon, short maturity

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7. A bond currently sells for \$1,050, which gives it a YTM of 6%.
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• Spring '14
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