7.21 Consider the following two bonds which make semiannual coupon payments: a 20- year bond with a 6% coupon and 20% yield, and a 30-year bond with a 6% coupon and a 20% yield. a. For each bond, compute the price value of a basis point. b. For each bond, compute Macaulay duration.

7.21 Consider the following two bonds which make semiannual coupon payments: a 20- year bond with a 6% coupon and 20% yield, and a 30-year bond with a 6% coupon and a 20% yield. a. For each bond, compute the price value of a basis point. b. For each bond, compute Macaulay duration.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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7.21 Consider the following two bonds which make semiannual coupon payments: a 20-
year bond with a 6% coupon and 20% yield, and a 30-year bond with a 6% coupon
and a 20% yield.
a. For each bond, compute the price value of a basis point.
b. For each bond, compute Macaulay duration.

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B. Directions: Compute for the following given statement and justify your answer. 1. Consider two bonds. Bond A has a face value of P100,000 and a stated rate of 12%. Bond B has a face value of P100,000 and a stated rate of 8%. Both bonds have the same maturity. Which bond has the greatest interest rate risk? 2. Consider two bonds. Bond X has a face value of P100,000 and five years remaining to maturity. Bond Y has a face value of P100,000 and ten years remaining to maturity. Both bonds have the same stated rate of 12%. Which bond has the greatest interest rate risk?
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