Additional_bond_pricing_questions

Additional_bond_pricing_questions - Cecchetti Chapter 6...

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Cecchetti Chapter 6: Selected Problems and Solutions 1. Consider a U.S. Treasury Bill with 270 days to maturity. If the annual yield is 3.8 percent, what is the price? Answer: 24 . 97 $ ) 038 . 0 1 ( 100 $ 12 / 9 = + = P 2. Which of these $100 face value bonds will have a higher yield to maturity? Why? a. 6 percent coupon bond selling for $85 b. 7 percent coupon bond selling for $100 c. 8 percent coupon bond selling for $115 Answer: a. % 71 . 24 1 100 $ 1 6 $ 85 $ = + + + = i i i b. % 7 1 100 $ 1 7 $ 100 $ = + + + = i i i c. % 1 . 6 1 100 $ 1 8 $ 115 $ - = + + + = i i i Option (a.) has the highest yield to maturity. 3. You are considering purchasing a consol that promises annual payments of $4. a. If the current interest rate is 5 percent, what is the price of the consol? b. You are concerned that the interest rate may rise to 6 percent. Compute the percentage change in the price of the consol and the percentage change in the interest rate. Compare them. c.
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Additional_bond_pricing_questions - Cecchetti Chapter 6...

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