Find the price of the bond if its yield to maturity falls

Assignment Help Finance Basics

Reference no: EM131926423

Question: A 30-year maturity bond making annual coupon payments with a coupon rate of 16.3% has duration of 10.54 years and convexity of 161.2. The bond currently sells at a yield to maturity of 9%.

a. Find the price of the bond if its yield to maturity falls to 8%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. What price would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

d-1. What is the percent error for each rule? (Enter your answer as a positive value. Do not round intermediate calculations. Round "Duration Rule" to 2 decimal places and "Duration-with-Convexity Rule" to 3 decimal places.)

Percent Error

YTM

Duration Rule

Duration-with-Convexity Rule

d-2. What do you conclude about the accuracy of the two rules? A or B

A. The duration rule provides more accurate approximations to the actual change in price.

B. The duration-with-convexity rule provides more accurate approximations to the actual change in price.

e-1. Find the price of the bond if it's yield to maturity rises to 10%. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

e-2. What price would be predicted by the duration rule? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

e-3. What price would be predicted by the duration-with-convexity rule? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

e-4. What is the percent error for each rule? (Do not round intermediate calculations. Round "Duration Rule" to 2 decimal places and "Duration-with-Convexity Rule" to 3 decimal places.)

Percent Error

YTM

Duration Rule

Duration-with- Convexity Rule

10%

e-5. Are your conclusions about the accuracy of the two rules consistent with parts (a) - (d)?

Reference no: EM131926423

Questions Cloud

Provide feedback for the two discussion : Please provide feedback for the two discussion assignment in 100 words each - One thing that surprised me overall was that human trafficking is believed

Calculate the portfolio weights of each stock : If you own 300 shares of Xerox at $18.04, 400 shares of Qwest at $8.85, and 200 shares of Liz Claiborne at $45.43, what are the portfolio weights of each stock?

Coefficient of friction between tires and road is mu : A high pressure fire hose is mounted on a tank truck weighing W lbs. The truck is parked on a icy road; the coefficient of friction between tires

About the mortgage finance-adjustable rate mortgage : What is the initial monthly payment in each of the respective loans? You wonder if an adjustable rate mortgage might be beneficial.

Find the price of the bond if its yield to maturity falls : A 30-year maturity bond making annual coupon payments with a coupon rate of 16.3% has duration of 10.54 years and convexity of 161.2.

Static friction between the ladder and the ground : The coefficent of static friction between the ladder and the ground is 0.500.

What angle of refraction does the ray leave the glass : A ray of light is incident on the glass at point A with a ?1 = 40.0° angle of incidence. At what angle of refraction does the ray leave the glass at point B?

Prepare a partial incomestatement for years : All tax changes are enacted into law as of the beginning of the year. All tax rate changes are not known until the year of change.

What is the stock price of fairfax pizza expected to be : Fairfax Pizza stock is currently priced at 86.64 dollars per share and is expected to pay its next dividend, which is expected to be 3.58 dollars, in 1 year.

User Account

All Pages