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What is the bond six-monthly YTM

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Reference no: EM132208272

Question - A bond with a par value of £100 and a 9% annual coupon (paid semi-annually) trades on 1.1.2004 (just after the coupon payment) for £105.58. The bond will be redeemed at par 1.1.2006.

a) What is the bond's coupon?

b) What is the coupon rate?

c) What is the current annual bond equivalent interest yield on the bond? What is the effective annual interest yield?

d) What is the bond's six-monthly YTM?

e) What is the annual bond equivalent YTM?

f) What is the effective annual YTM?

g) What is the duration (D) of the bond?

h) If annual effective market interest rates rise by 201 basis points (2.01%), by how many percent will the value of the bond change (according to the duration measure)? [Remember that the interest rate sensitivity measure D* = D/(1+r)].

i. Why is the answer as calculated (h) above likely to be an inaccurate measure of the actual change in the bond's value?

j) Using the NPV (YTM) formula, what will be the market value of the bond if market interest rates change as specified under point (h)?

Reference no: EM132208272

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