Problem 1: Consider a bond with a 7% annual coupon and a face value of $1,000. Complete the following table.
|
Years to maturity
|
Yield to maturity
|
Current price
|
|
3
|
5
|
|
|
3
|
7
|
|
|
6
|
7
|
|
|
9
|
7
|
|
|
9
|
9
|
|
What relationships do you observe between maturity and discount rate and the current price?
Problem 2: Calculate the duration of a $1,000 6% coupon bond with three years to maturity. Assume that all market interest rates are 7%.