Consider three bonds with 520 coupon rates all making annual

Consider three bonds with 5.20% coupon rates, all making annual coupon payments and all selling at face value. The short-term bond has a maturity of 4 years, the intermediate-term bond has a maturity of 8 years, and the long-term bond has a maturity of 30 years.

a. What will be the price of the 4-year bond if its yield increases to 6.20%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b. What will be the price of the 8-year bond if its yield increases to 6.20%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

c. What will be the price of the 30-year bond if its yield increases to 6.20%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

d. What will be the price of the 4-year bond if its yield decreases to 4.20%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Solution

a. pmt = 52, fv = 1000, rate = 6.20%, n = 4

use PV function in Excel

price = 965.51

b. replace n = 8 and calculate pv

price = 938.39

c. replace n = 30 and calculate pv

price = 865.25

d. pmt = 52, fv = 1000, rate = 4.20%, n = 4

price = 1036.13