Calculate the exact price of the bond

Reference no: EM13827756

Problem:

Consider a five-year, 8 percent annual coupon bond selling at par of $1,000.

1. What is the duration of this bond?

a. 5 years.
b. 4.31 years.
c. 3.96 years.
d. 5.07 years.
e. Not enough information to answer.

2. If interest rates increase by 20 basis points, what is the approximate change in the market price using the duration approximation?

a. -$7.98.
b. -$7.94.
c. -$3.99.
d. +$3.99.
e. -$7.94.

3. Using present value bond valuation techniques, calculate the exact price of the bond after the interest rate increase of 20 basis points.

a. $1,007.94.
b. $992.02.
c. $992.06.
d. $996.01.
e. $1003.99.

Summary of problem:

These short questions belong to Finance and the questions deal with a 5 year, 8% coupon bond selling at $1000. The duration of the bond, the price of the bond based on the increase in interest rates needs to be calculated.

Reference no: EM13827756

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