Question

1) A 100-year corporate bond has a coupon rate of 10% with monthly payments. If interest rates drop to 4% on similar bonds, then what is the value of the bond in the marketplace?

2) A 30-year annual bond is offered at 10%. After that the buyer of the bond sells the bond to someone else, but in between interest rates rose to 10.5%. Why is the first buyer of the bond upset with what the second buyer of bond is willing to pay?

3) A 10-year corporate bond has a coupon rate of 10% with annual payments. If the current value of the bond in the marketplace is $900, then what is the Yield-to-Maturity (YTM)?

Answer 1

1.
=10%*1000/12*1/(4%/12)*(1-1/(1+4%/12)^(12*100))+1000/(1+4%/12)^(12*100)=2472.34318

2.
Because bond price decreases with rise in interest rates and hence he is incurring a loss
3.
=RATE(10,10%*1000,-900,1000)=11.7519%