1. The document discusses bond pricing and how changes in yield affect the prices of different types of bonds.
2. A 5 basis point increase in yield resulted in a larger price drop for a long-term, low coupon bond (-0.59%) compared to a high coupon bond (-0.55%).
3. Similarly, the price drop was larger for a long-term bond (-0.59%) compared to a short-term bond (-0.39%) when yields rose by the same amount.
4. Investors should shift away from bonds that are more sensitive to interest rate changes, such as long-term, low coupon bonds, and favor less sensitive bonds when rates are expected to
1. The document discusses bond pricing and how changes in yield affect the prices of different types of bonds.
2. A 5 basis point increase in yield resulted in a larger price drop for a long-term, low coupon bond (-0.59%) compared to a high coupon bond (-0.55%).
3. Similarly, the price drop was larger for a long-term bond (-0.59%) compared to a short-term bond (-0.39%) when yields rose by the same amount.
4. Investors should shift away from bonds that are more sensitive to interest rate changes, such as long-term, low coupon bonds, and favor less sensitive bonds when rates are expected to
1. The document discusses bond pricing and how changes in yield affect the prices of different types of bonds.
2. A 5 basis point increase in yield resulted in a larger price drop for a long-term, low coupon bond (-0.59%) compared to a high coupon bond (-0.55%).
3. Similarly, the price drop was larger for a long-term bond (-0.59%) compared to a short-term bond (-0.39%) when yields rose by the same amount.
4. Investors should shift away from bonds that are more sensitive to interest rate changes, such as long-term, low coupon bonds, and favor less sensitive bonds when rates are expected to
B. i) At a YTM of 5.445%, the settlement price is $106. 426. ii) The percentage change in price is 0.59%.
Valuation Yield Coupon Present or To Coupon No. of Discount Per Value Face Present SETTLEMENT Transaction Settlement Maturity Maturity Rate Periods to Rate Period Annuity Value Value PRICE Date Date Date (%) (%) Maturity Per Period ($) Factor ($) Factor ($)
C. i) The settlement price is $128.455. ii) The settlement price is $127.743. iii) The percentage change in price is 0.55%. iv) The low coupon bond is more price sensitive as the % drop in price is larger for the low coupon bond (-0.59%) than the high coupon bond (-0.55%) given the same basis point rise in rates.
Valuation Yield Coupon Present or To Coupon No. of Discount Per Value Face Present SETTLEMENT Transaction Settlement Maturity Maturity Rate Periods to Rate Period Annuity Value Value PRICE Date Date Date (%) (%) Maturity Per Period ($) Factor ($) Factor ($)
D. i) The settlement price is $104.566. ii) The settlement price is $104.161. iii) The percentage change in price is 0.39%. iv) The long term bond is more price sensitive as the % drop in price is larger for the long term bond (-0.59%) than the short term bond (-0.39%) given the same basis point rise in rates.
Valuation Yield Coupon Present Or To Coupon No. of Discount Per Value Face Present SETTLEMENT Transaction Settlement Maturity Maturity Rate Periods Rate Period Annuity Value Value PRICE Date Date Date (%) (%) to Maturity Per Period ($) Factor ($) Factor ($)
E. If interest rates are expected to rise (fall), I tend to shift funds away from the long (short) term low (high) coupon bonds towards the short (long) term high (low) coupon bonds to minimise (maximise) the potential capital loss (gain).