Problem:
A bond is scheduled to mature in five years. Its coupon rate is 9 percent with interest paid annually. This $1,000 par value bond carries a yield to maturity of 10 percent.
1. What is the bond's price?
a. $962.09.
b. $961.39.
c. $1,000.
d. $1,038.90.
e. $995.05.
2. What is the duration of the bond?
a. 4.677 years.
b. 5.000 years.
c. 4.674 years.
d. 4.328 years.
e. 4.223 years
3. Calculate the percentage change in this bond's price if interest rates on comparable risk securities decline to 7 percent. Use the duration valuation equation.
a. +8.58 percent.
b. +12.76 percent.
c. -12.75 percent.
d. +11.80 percent.
e. +11.52 percent.
4. Calculate the percentage change in this bond's price if interest rates on comparable risk securities increase to 11 percent. Use the duration valuation equation.
a. +4.25 percent.
b. -4.25 percent.
c. +8.58 percent.
d. -3.93 percent.
e. -3.84 percent.
Additional information:
These short questions is from Finance as well as the questions deal with the bond scheduled to mature in 5 years. Various questions about this have been answered in the solution comprehensively.