What is the market price of the bond-to the nearest dollar

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1. If you invested $1,700 today and another $2,000 in two years, to the nearest dollar, how much will your investment be worth in seven years? Assume an 5.4% annual compound return.

2. A bond with a par value of $1,000 and a 6% semi-annual coupon rate has 9 years to maturity. Assuming it is priced to yield 8%, compounded semi-annually, what is the market price of the bond, to the nearest dollar?

3. Suppose you are considering the purchase of a bond with five years remaining to maturity. The bond has a face amount of $1,000, a coupon interest rate of 4.5%, pays interest annually. The yield to maturity on this bond is currently 3%. If interest rates decrease by 1 percentage point (100 basis points), how much will the bond’s value change?

4. Suppose you are considering adding the bond in # 3 above to your portfolio. Before doing so, you need to know the duration of the bond. Please compute the duration and modified duration of the bond at an 3% yield to maturity. Suppose interest rates increase by 1 percentage point (100 basis points), based upon duration, how much will the bond’s value change? Will the change be positive or negative? Why.

Reference no: EM131304770

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