FIN2004 Tutorial 5 - NUS Business School FIN2004 Finance Tutorial 5#1 Bond X is a premium bond making annual payments The bond pays a 9 percent coupon

# FIN2004 Tutorial 5 - NUS Business School FIN2004 Finance...

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1 NUS Business School FIN2004 Finance Tutorial 5 #1: Bond X is a premium bond making annual payments. The bond pays a 9 percent coupon, has a YTM of 6 percent, and has 16 years to maturity. Bond Y is a discount bond making annual payments. This bond pays a 6 percent coupon, has a YTM of 9 percent, and also has 16 years to maturity. If interest rates remain unchanged, how much do you would expect the price of Bonds X and Y to be: (a) 3 years from now (b) 10 years from now. #2: Bond J is a 4 percent coupon bond. Bond K is a 9 percent coupon bond. Both bonds have 7 years to maturity, make semiannual payments, and have a YTM of 7 percent. Requirement 1: (a) If interest rates suddenly rise by 5 percent, what is the percentage price change of Bond J? (b) If interest rates suddenly rise by 5 percent, what is the percentage price change of Bond K? Requirement 2: (c) If interest rates suddenly fall by 5 percent, what is the percentage price change of Bond J?