which suffers the least percentage price decline

Reference no: EM13268583

The par value of each of the following bonds is $1,000. The yield to maturity on Treasury securities (for all maturities) is 12 percent. All interest is paid semiannually.

U.S. Treasury bond, 10 percent coupon, 10-year maturity

U.S. Treasury bond, 10 percent coupon, 20-year maturity

U.S. Treasury bond, 5 percent coupon, 10-year maturity

U.S. Treasury bond, 5 percent coupon, 20-year maturity

U.S. Treasury zero-coupon bond, 10-year maturity U.S.

Treasury zero-coupon bond, 20-year maturity

Note: A zero-coupon bond pays no interest. Instead it sells at a discount to its par value sufficient to yield the required return.

a) Calculate the current price of each bond.

b) If the market interest rates increase to 14%, what will be the new price of each bond?

c) Which bond suffers the greatest percentage price decline? Why? Which suffers the least percentage price decline? Why?

Reference no: EM13268583

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