1. Today is t=0. Consider the following bonds in which the first coupon payment (if any) will begin in t=1.
Bond…………………Coupon Rate (Annual payment)……………..Maturity (years)
A……………………………………….0%…………………………………………….3
B……………………………………….7%…………………………………………….3
a. Derive the t=0 price of each bond when the yield-to-maturity is 6%.
b. Derive the t=0 price of the bond when the yield-to-maturity is 5%.
c. Which of the bonds is most sensitive to the decline in the interest rate from 6% to 5%? Why?
. Today is t=0. Consider the following bonds in which the first coupon payment (if any) will begin in t=1.
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