Class 6

Class 6 - Warren Buffett: If yield declines, the price of...

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Ch. 9: Bonds 6. o A. Every year receive ($1000 x 5%) plus $1000 at end of year 30 What should price of bond be? 50/ (1+.08)^1 + 50/ (1+.08)^2 + … Sum up cash flows to get price At a yield of 8% the price of a bond is… o B. Every year receive ($1000 x 10%) When you buy a bond you are paying the price, not the face value o C. For 5 years receive ($1000 x 10%) 2 ways of listing price of a bond: Yield Price Both are inversely related
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Unformatted text preview: Warren Buffett: If yield declines, the price of my investment increases Which of these bonds gives me the highest % increase in price? A decrease in yield has greatest impact on long-maturity bonds 5. o i. Annual return: 7% x $100 = $7 and $100 in year 5 GoalSeek in what if? Analysis under Data tab in Excel Annualized YTM = semi-annual yield x 2...
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Class 6 - Warren Buffett: If yield declines, the price of...

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