Explore BrainMass

Explore BrainMass

    Analyzing the impact of interest rate change on prices

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Interest Rate Sensitivity

    A bond trader purchased each of the following bonds at a yield to maturity of 9%. Immediately after she purchased the bonds, interest rates fell to 5%. What is the percentage change in the price of each bond after the decline in interest rates? Fill in the following table. Round your answers to two decimal places.

    Price @ 9% Price @ 5% Percentage Change
    10-year, 10% annual coupon $ $ %
    10-year zero %
    5-year zero %
    30-year zero %
    $100 perpetuity %

    © BrainMass Inc. brainmass.com June 4, 2020, 4:40 am ad1c9bdddf
    https://brainmass.com/business/dividends-stock-repurchase-and-policy/analyzing-impact-interest-rate-change-prices-573683

    Solution Preview

    A bond trader purchased each of the following bonds at a yield to maturity of 9%. Immediately after she purchased the bonds, interest rates fell to 5%. What is the percentage change in the price of each bond after the decline in interest rates? Fill in the following table.
    1) 10-year, 10% annual coupon
    Face value of bond=M=$1000
    Coupon amount=C=1000*10%=$100
    Number of periods=n=10
    YTM=r=9%
    Price of ...

    Solution Summary

    This solution depicts the steps to calculate the price changes due to variation in interest rate for the given cases.

    $2.19

    ADVERTISEMENT