Consider the following 4 bonds A B C D:(a) What is the percentage change in the price of each bond if its yields to maturity falls from 6% to 5%

Answer is explained and solved in the explanation section below.

Explanation:

Note: This question is not complete and lacks necessary data to solve. But I have found a similar question on internet and will be using its's data to solve this question for the sake of concept and understanding.

Data Missing:

Bonds              Coupon Rates          Maturity

A                              0%                         15 years

B                              0%                          10 years

C                              4%                          15 years

D                               8%                         10 years

Par Value = $1000

Required = % age change in price of bonds, if yields to maturity falls from 6% to 5%.

New YTM = 5%

Old YTM = 6%

For Bond A:

Formula for Old Price = PV(6%, maturity, -annual coupon, -1000)

You need to put this function into Microsoft Excel to solve for old price.

Annual coupon formula = $1000 x coupon rate.

So,

We have,

Maturity = 15 years

Annual Coupon = $1000 x 0% = 0

Old price = PV(6%, maturity, -annual coupon, -1000)

Old price = PV(6%, 15, 0, -1000)

Old Price = $417.27

Now, for new price:

Formula for New Price = PV(5%, maturity, -annual coupon, -1000)

New Price = PV(5%, maturity, -annual coupon, -1000)

New Price = PV(5%, 15, 0, -1000)

New Price = $481.02

Now, we need to find the %age change of bond A.

%age change = (New Price - Old Price) divided by Old Price x 100

%age change = ( $481.02 - $417.27) / ($417.27) x 100

%age change = 15.28%

For bond B:

Old Price = PV(6%, maturity, -annual coupon, -1000)

Maturity = 10 years

Annual Coupon = $1000 x 0% = 0

Old Price = PV(6%, 10, 0, -1000)

Old Price = $558.39

For New Price:

New Price = PV(5%, maturity, -annual coupon, -1000)

New Price = PV(5%, 10, 0, -1000)

New Price = $613.91

%age change = (New Price - Old Price) divided by Old Price x 100

%age change = ( $613.91 - $558.39) / ($558.39) x 100

%age change = 9.94%

For Bond C:

Old Price = PV(6%, maturity, -annual coupon, -1000)

Maturity = 15 years

Annual Coupon = $1000 x 4% = 40

Old Price = PV(6%, 15, -40, -1000)

Old Price = $805.76

New Price = PV(5%, maturity, -annual coupon, -1000)

New Price = PV(5%, 15, -40, -1000)

New Price = $896.20

%age change = (New Price - Old Price) divided by Old Price x 100

%age change =  ( $896.20 - $804.76) / ($805.76) x 100

%age change = 11.23%

For Bond D:

Old Price = PV(6%, maturity, -annual coupon, -1000)

Maturity = 10 years

Annual Coupon = $1000 x 8% = 80

Old Price = PV(6%, 10, -80, -1000)

Old Price = $1,147.20

New Price = PV(5%, maturity, -annual coupon, -1000)

New Price = PV(5%, 10, -80, -1000)

New Price = $1,231.65

%age change = (New Price - Old Price) divided by Old Price x 100

%age change =  ( $1231.65 - $1147.20) / ($1147.20) x 100

%age change = 7.36%

Hence,

% age change of A = 15.28%

% age change of B = 9.94%

% age change of C = 11.23%

% age change of D = 7.36%

the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.

d. all of the above are true.