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Answered: - Problem #2 a. Assume the interest rate in the market (yield to



Problem #2

a.

Assume the interest rate in the market (yield to maturity) goes down to 8 percent for the 10 percent bonds. Using column 2, indicate what the bond price will be with a 15-year, a 20-year, and a 30-year time period.


?

Maturity

Bond Price

??15 year

$ ?

??20 year

$ ?

??30 year

$ ?


?

b.

Assume the interest rate in the market (yield to maturity)?goes up?to 12 percent for the 10 percent bonds. Using column 3, indicate what the bond price will be with a 15-year, a 20-year, and a 30-year period.


?

Maturity

Bond Price

??15 year

$ ?

??20 year

$ ?

??30 year

$ ?


?

c.

Assume the interest rate in the market (yield to maturity) goes down to 8 percent for the 10 percent bonds. If interest rates in the market are going down, which bond would you choose to own?

?

??

?

15 years

20 years

30 years


?

d.

Assume the interest rate in the market (yield to maturity) goes up to 12 percent for the 10 percent bonds. If interest rates in the market are going up, which bond would you choose to own?

?

??

?

15 years

20 years

30 years



a

 


 

Maturity Bond Price

 

15 $ 1,171.19

 

20 $ 1,196.36

 

30 $ 1,225.16

 


 

b

 


 

Maturity Bond Price

 

15 $

 

863.78

 

20 $

 

850.61

 

30 $

 

838.90

 


 

c

 


 

I wouldchoose Bond with 30 year maturity

 


 

d

 


 

I would choose bond...

 

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