This document provides information on 7 U.S. Treasury bonds with par values of $1,000 and varying coupon rates and maturity dates. It asks to calculate the current price of each bond given a required rate of return of 8% annually, and then recalculate the prices if the required rate of return increases to 10%. It asks to determine the percentage change in price for each bond and identify which bond suffers the greatest and least percentage price decline.

1. The par value of each of the following bonds is $1,000. The required rate of return on Treasury
securities (for all maturities) is 8 percent. All interest is paid annually. U.S. Treasury bond,11
percent coupon Treasury 10-year maturity bond, U.S. Treasury bond,11 percent coupon
Treasury 20-year maturity U.S. Treasury bond,6 percent coupon Treasury 10-year maturity U.S.
Treasury bond,6 percent coupon Treasury 20-year maturity U.S. Treasury bond,1 percent
coupon Treasury 10-year maturity U.S. Treasury bond,1 percent coupon Treasury 20-year
maturity Calculate the current price of each bond. If the required rate of return increases to 10
percent, what will be the new price of each bond? Calculate the percentage change in price for
each bond. Which bond suffers the greatest percentage price decline? Why? Which suffers the
least percentage price decline? Why?
Solution
a)
b)
c)DF @ 8%Bond 1Bond 2Bond 3Bond 4Bond 5Bond
610.92591101106060101020.85731101106060101030.79381101106060101040.735011011060
60101050.68061101106060101060.63021101106060101070.58351101106060101080.5403110
1106060101090.500211011060601010100.46321110110106060101010110.42891106010120.3
9711106010130.36771106010140.34051106010150.31521106010160.29191106010170.270311
06010180.25021106010190.23171106010200.2145111010601010Current
Price1201.3021294.544865.7984803.6371530.2943312.7297