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Unformatted text preview: coupon period has 181 days. What is the invoice price of the bond in (a) now? 3. Bond Prices and Interest Rates Consider the following three bonds: A, a 1year zerocoupon bond; B, a 10year zerocoupon bond; and C, a 10year bond with a 5% coupon. The face value of all the three bonds is $1,000. Suppose the interest rate is 6% for all maturities. (a) The interest rate increases to 8% for all maturities. Will the prices of the three bonds increase or decrease? (No calculations necessary). (b) The interest rate increases to 8% for all maturities. Will the percentage change in the price of A bigger than that of B? Why or why not? (No calculations necessary). (c) The interest rate increases to 8% for all maturities. Will the percentage change in the price of B bigger than that of C? Why or why not? (No calculations necessary). 4. Recommended Problems from the Textbook (BKM) Effective annual yield: Chapter 14 Problems 6 and 7 (P.501)...
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This note was uploaded on 11/27/2011 for the course FINA 3104 taught by Professor Darwin during the Spring '11 term at HKUST.
 Spring '11
 Darwin
 Interest

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