Dear friends pls provide any other formula or shortcut method to understand this problem
The answer given in suggested answer is so confusing
Find the current market price of a bond having face value `1,00,000 redeemable after 6 year
maturity with YTM at 16% payable annually and duration 4.3202 years. Given 1.166 = 2.4364.
(6 Marks) (May 2007)
Question(a) Consider two bonds, one with 5 years to maturity and the other with 20 years to maturity.
Both the bonds have a face value of ` 1,000 and coupon rate of 8% (with annual interest
payments) and both are selling at par. Assume that the yields of both the bonds fall to
6%, whether the price of bond will increase or decrease? What percentage of this
increase/decrease comes from a change in the present value of bond’s principal amount
and what percentage of this increase/decrease comes from a change in the present
value of bond’s interest payments?
(b) Consider a bond selling at its par value of ` 1,000, with 6 years to maturity and a 7%
coupon rate (with annual interest payment), what is bond’s duration?
(c) If the YTM of the bond in (b) above increases to 10%, how it affects the bond’s duration?
And why? (8+6+3 Marks) (June 2009)(S)
Both the bonds have a face value of ` 1,000 and coupon rate of 8% (with annual interest
payments) and both are selling at par. Assume that the yields of both the bonds fall to
6%, whether the price of bond will increase or decrease? What percentage of this
increase/decrease comes from a change in the present value of bond’s principal amount
and what percentage of this increase/decrease comes from a change in the present
value of bond’s interest payments?
(b) Consider a bond selling at its par value of ` 1,000, with 6 years to maturity and a 7%
coupon rate (with annual interest payment), what is bond’s duration?
(c) If the YTM of the bond in (b) above increases to 10%, how it affects the bond’s duration?
And why? (8+6+3 Marks) (June 2009)(S)
Thanks in Advance
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CAclubindia
