Which pays interests semi-annually

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Which pays interests semi-annually. The modified duration is 3.9944 years and convexity measure is 19.7636 years. (Assume par value is $1000). Coupon rate: 9%, current yield to maturity: 8%, maturity: 5 years. (1) Calculate the price value of a basis point if the new yield to maturity becomes 8.01% (2) Calculate the actual price of the bond for a 50-basis-point increase in interest rates (yield changes from 8% to 8.5%) (3) Using duration, estimate the approximate price of the bond for a 50-basis point increase in interest rates (yield changes from 8% to 8.5%) (4) Using both duration and convexity measure, estimate the approximate price of the bond for a 50-basis-point increase in interest rates (yield changes from 8% to 8.5%) (5) Compare your results in (3) and (4) and explain which is closer to the actual price in (2).

Reference no: EM131968531

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