Bond Pricing: Level 2-3 Challenges


An investor bought a bond, with a constant coupon rate, for $1000. The current yield of the bond is 10%. If the yield rises to 11%, what happens to the price?

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Which of the following bonds, issued by the same corporation, would have the highest price volatility?

If you believe that interest rates will rise soon, which of the following bond trades should you make (to maximize your percentage return)?

What is the (dollar) price change for a 1% increase in yield (in $) of a $100 bond that pays 10% coupon rate for 5 years, with a constant yield curve of 6%?

You own a bond that will pay 7% per year for the next 10 years, on a principal of $20,000. If the prevailing discount rate is 10% throughout, what is the bond worth now?


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