8/13/2019 Bond+Pricing+DQ

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Session 2: Bond PricingA. For class discussion.

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 ($)

YTM C t r CPP PVA(r,t) FV PVF(r,t) P0

11/11/05 15/11/05 15/05/13 5.345% 6.50% 15 2.6725% 3.250 12.2257 100 0.6733 107.060

11/11/05 15/11/05 15/05/13 5.445% 6.50% 15 2.7225% 3.250 12.1811 100 0.6684 106.426

Percentage Change -0.59%

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%) giventhe 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 ($)

YTM C t r CPP PVA(r,t) FV PVF(r,t) P0

11/11/05 15/11/05 15/05/13 5.345% 10.00% 15 2.6725% 5.000 12.2257 100 0.6733 128.455

11/11/05 15/11/05 15/05/13 5.445% 10.00% 15 2.7225% 5.000 12.1811 100 0.6684 127.743

Percentage Change -0.55%

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 samebasis 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 ($)

8/13/2019 Bond+Pricing+DQ

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YTM C t r CPP PVA(r,t) FV PVF(r,t) P0

11/11/05 15/11/05 15/05/10 5.345% 6.50% 9 2.6725% 3.250 7.9064 100 0.7887 104.566

11/11/05 15/11/05 15/05/10 5.445% 6.50% 9 2.7225% 3.250 7.8878 100 0.7853 104.161

Percentage Change -0.39%

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).