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1. Consider the following four bonds (assuming semi-annual compounding and the par value
nf$1) a) What is the price of each bond if the required yield is 10% ? b) What is the price of each
bond if the required yield decreases from 10% to 9%, and by what percentage did the price of
each bond change? c) What is the price of each bond if the required yield increases from 10% to
11%, and by what percentage did the price of each bond change? d) From your answers to
Question 1, parts b and c, what can you say about the relative price volatility of a bond when the
yield decreases compared to when the yield increases? Comparing bonds A,B, and C, what can
you say about the relative price volatility of a bond with longer maturity compared to one with
shorter maturity? Comparing bonds A and D, what can you say about the relative price volatility
of a bond with lower coupon rate compared to one with higher coupon rate?

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1. Consider the following four bonds (assuming semi-annual compoundin.pdf

  • 1. 1. Consider the following four bonds (assuming semi-annual compounding and the par value nf$1) a) What is the price of each bond if the required yield is 10% ? b) What is the price of each bond if the required yield decreases from 10% to 9%, and by what percentage did the price of each bond change? c) What is the price of each bond if the required yield increases from 10% to 11%, and by what percentage did the price of each bond change? d) From your answers to Question 1, parts b and c, what can you say about the relative price volatility of a bond when the yield decreases compared to when the yield increases? Comparing bonds A,B, and C, what can you say about the relative price volatility of a bond with longer maturity compared to one with shorter maturity? Comparing bonds A and D, what can you say about the relative price volatility of a bond with lower coupon rate compared to one with higher coupon rate?